$$\text{Market Capitalization} = \text{Market Price per Share} \times \text{Number of Shares}$$

$$\text{Quick Ratio} = \frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}$$

$$\text{P/E Ratio} = \frac{\text{Market Capitalization}}{\text{Net Income}}$$

Question 1

Which of the following best describes the purpose of the Statement of Financial Position (Balance Sheet)?

Accepted Answer

It provides a snapshot of the firm's assets, liabilities, and shareholders’ equity at a specific point in time.

Question 2

Under IFRS, which financial statement includes both the income statement and 'other comprehensive income'?

Accepted Answer

Statement of Comprehensive Income

Question 3

A company has current assets of $$500,000 and current liabilities of 350$$,000. What is its net working capital?

Accepted Answer

$150,000

Question 4

If a firm has total assets of $$2,000,000 and total liabilities of 1$$,500,000, what is its book value of equity?

Accepted Answer

$500,000

Question 5

Which formula correctly calculates a firm's market capitalization?

Accepted Answer

$$	ext{Market Capitalization} = 	ext{Market Price per Share} 	imes 	ext{Number of Shares}$$

Question 6

A company has a market capitalization of $$1,000,000 and a book value of equity of 400$$,000. What is its market-to-book ratio?

Accepted Answer

$$2.5$$

Question 7

Which of the following is NOT included in the calculation of enterprise value?

Accepted Answer

Inventory

Question 8

Given the following: Market Value of Equity = $$800 million, Debt = 500 $$million, Cash = $100 million. What is the enterprise value?

Accepted Answer

$$1,300$$ million

Question 9

Which ratio best reflects a company's ability to sell a product for more than the direct costs of making it?

Accepted Answer

Gross Margin

Question 10

A firm has sales of $$2,000,000 and gross profit of 600$$,000. What is its gross margin?

Accepted Answer

$$0.30$$

Question 11

Which formula is used to calculate the quick ratio (acid-test ratio)?

Accepted Answer

$$	ext{Quick Ratio} = \frac{	ext{Current Assets} - 	ext{Inventory}}{	ext{Current Liabilities}}$$

Question 12

A company has operating income of $$300,000 and sales of 1$$,500,000. What is its operating margin?

Accepted Answer

$$0.20$$

Question 13

If a firm has net income of $$100,000 and sales of 1$$,000,000, what is its net profit margin?

Accepted Answer

$$0.10$$

Question 14

Which ratio measures how efficiently a company turns its inventory into sales?

Accepted Answer

Inventory Turnover

Question 15

A firm has cost of goods sold of $$900,000 and average inventory of 150$$,000. What is its inventory turnover?

Accepted Answer

$$6$$

Question 16

Which of the following best describes the purpose of the Sarbanes-Oxley Act (SOX)?

Accepted Answer

To improve the accuracy of financial information given to boards and shareholders.

Question 17

A company has total debt of $$600,000, total equity of 400$$,000, and excess cash of $100,000. What is its net debt?

Accepted Answer

$$500,000$$

Question 18

Which formula is used to calculate the price-earnings (P/E) ratio?

Accepted Answer

$$	ext{P/E Ratio} = \frac{	ext{Market Capitalization}}{	ext{Net Income}}$$

Question 19

A firm has net income of $$250,000 and book value of equity of 1$$,000,000. What is its return on equity (ROE)?

Accepted Answer

$$0.25$$

Introduction to Financial Statement Analysis – Fundamentals of Corporate Finance (Canadian Edition, Chapter 2)

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