Q: Which formula correctly calculates Earnings Per Share (EPS)?

$$\text{EPS} = \frac{\text{Net Income}}{\text{Number of Shares Outstanding}}$$

Q: Which formula correctly calculates Book Value Per Share (BVPS)?

$$\text{BVPS} = \frac{\text{Common Equity}}{\text{Number of Shares Outstanding}}$$

Q: Which formula correctly calculates EBIT (Earnings Before Interest and Taxes)?

$$\text{EBIT} = \text{Net Sales} - \text{COGS} - \text{Depreciation} - \text{Other Operating Expenses}$$

Question 1

Which of the following statements best describes the purpose of the balance sheet?

Accepted Answer

It provides a snapshot of the firm’s financial position at a particular point in time.

Question 2

Under IFRS, which of the following is true for Canadian publicly traded companies as of 2011?

Accepted Answer

They must use IFRS.

Question 3

Which of the following is NOT included in operating current assets?

Accepted Answer

Short-term investments

Question 4

A company’s statement of cash flows separates activities into which three categories?

Accepted Answer

Operating, investing, and financing

Question 5

If a company’s accounts receivable increased by $60 million during the year, what is the effect on cash according to the statement of cash flows?

Accepted Answer

Cash decreases by $60 million.

Question 6

Which formula correctly calculates Earnings Per Share (EPS)?

Accepted Answer

$$	ext{EPS} = \frac{	ext{Net Income}}{	ext{Number of Shares Outstanding}}$$

Question 7

Which of the following is a use of Free Cash Flow (FCF)?

Accepted Answer

Paying interest on debt

Question 8

Which item is excluded from operating current liabilities?

Accepted Answer

Notes payable

Question 9

A firm’s net income is $$117.5 million, depreciation is 100 $$million, accounts receivable increased by $$60 million, inventories increased by 200 $$million, accounts payable increased by $$30 million, and accruals increased by 10 $$million. What is the net cash provided by operating activities?

Accepted Answer

$$-2.5$$ million

Question 10

Which of the following statements about corporate taxes in Canada is correct?

Accepted Answer

Corporations can deduct interest expenses but not dividend payments.

Question 11

If a Canadian corporation receives dividend income from another Canadian corporation, how much of that income is excluded from taxable income?

Accepted Answer

100%

Question 12

Which of the following is true regarding the treatment of losses for Canadian corporations?

Accepted Answer

Losses can be carried back for 3 years and forward for 20 years.

Question 13

Which of the following is NOT a component of the statement of changes in equity?

Accepted Answer

Net sales

Question 14

Which formula correctly calculates Book Value Per Share (BVPS)?

Accepted Answer

$$	ext{BVPS} = \frac{	ext{Common Equity}}{	ext{Number of Shares Outstanding}}$$

Question 15

Which of the following is a reason why firms may prefer debt over equity financing?

Accepted Answer

Interest expenses are tax deductible.

Question 16

Which of the following is a feature of individual taxes in Canada?

Accepted Answer

Rates are progressive.

Question 17

Which formula correctly calculates EBIT (Earnings Before Interest and Taxes)?

Accepted Answer

$$	ext{EBIT} = 	ext{Net Sales} - 	ext{COGS} - 	ext{Depreciation} - 	ext{Other Operating Expenses}$$

Question 18

Which of the following is NOT a use of free cash flow?

Accepted Answer

Increasing inventory

Question 19

If a firm’s net cash provided by operating activities is negative, which of the following is most likely true?

Accepted Answer

The firm is not generating cash flow from its core operations.

Question 20

Which of the following best describes retained earnings?

Accepted Answer

The cumulative amount of earnings not paid out as dividends.

Financial Statements, Cash Flow, and Taxes: Chapter 2 Study Notes

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