Answer Options:
a. True
b. False
Answer:
b. False
Question: The balance sheet measures the flow of funds into and out of various accounts over time, while the income statement measures the firm’s financial position at a point in time.
Answer Options:
a. True
b. False
Answer:
b. False
Question: The time dimension is important in financial statement analysis. The balance sheet shows the firm’s financial position at a given point in time, the income statement shows results over a period of time, and the statement of cash flows reflects specific changes in accounts over that period of time.
Answer Options:
a. True
b. False
Answer:
a. True
Question: The income statement shows the difference between a firm’s income and its costs—i.e., its profits—during a specified period of time. However, not all reported income comes in the form of cash, and reported costs likewise may not be consistent with cash outlays. Therefore, there may be a substantial difference between a firm’s reported profits and its actual cash flow for the same period.
Answer Options:
a. True
b. False
Answer:
a. True
Question: To estimate the cash flow from operations, depreciation must be added back to net income because it is a non-cash charge that has been deducted from revenue in the net income calculation.
Answer Options:
a. True
b. False
Answer:
a. True
Question: Both interest and dividends paid by a corporation are deductible operating expenses, hence they decrease the firm’s taxes.
Answer Options:
a. True
b. False
Answer:
b. False
Question: EBITDA stands for earnings before interest, taxes, debt, and assets.
Answer Options:
a. True
b. False
Answer:
b. False
Question: The value of any asset is the present value of the cash flows the asset is expected to provide. The cash flows a business is able to provide to its investors is its free cash flow. This is the reason that FCF is so important in finance.
Answer Options:
a. True
b. False
Answer:
a. True
Question: Free cash flow is the amount of cash that if withdrawn would harm the firm’s ability to operate and to produce future cash flows.
Answer Options:
a. True
b. False
Answer:
b. False
Question: The balance sheet measures the flow of funds into and out of various accounts over time, while the income statement measures the firm’s financial position at a point in time.
Answer Options:
a. True
b. False
Answer:
b. False
Question: Assume that two firms are both following generally accepted accounting principles. Both firms commenced operations two years ago with $1 million of identical fixed assets, and neither firm sold any of those assets or purchased any new fixed assets. The two firms would be required to report the same amount of net fixed assets on their balance sheets as those statements are presented to investors.
Answer Options:
a. True
b. False
Answer:
b. False
Question: HD Corp and LD Corp have identical assets, sales, interest rates paid on their debt, tax rates, and EBIT. Both firms finance using only debt and common equity and total assets equal total invested capital. However, HD uses more debt than LD. Which of the following statements is CORRECT? a. Without more information, we cannot tell if HD or LD would have a higher or lower net income. b. HD would have the lower equity multiplier for use in the DuPont equation. c. HD would have to pay more in income taxes. d. HD would have the lower net income as shown on the income statement. e. HD would have the higher operating margin.
Answer:
d. HD would have the lower net income as shown on the income statement.
Question: Which of the following statements is CORRECT? A) Assume that two firms are both following generally accepted accounting principles. Both firms commenced operations two years ago with $1 million of identical fixed assets, and neither firm either sold any of those assets or purchased any new fixed assets. The two firms would be required to report the same amount of net fixed assets on their balance sheets as those statements are presented to investors.
Answer:
A
Question: The time dimension is important in financial statement analysis. The balance sheet shows the firm’s financial position at a given point in time, the income statement shows results over a period of time, and the statement of cash flows reflects specific changes in accounts over that period of time.
Answer Options:
a. True
b. False
Answer:
a. True
Question: Companies typically provide four basic financial statements: the fixed income statement, the current income statement, the balance sheet, and the cash flow statement.
Answer Options:
a. True
b. False
Answer:
b. False
Question: If we were describing the income statement and the balance sheet, it would be correct to say that the income statement is more like a video while the balance sheet is more like a snapshot.
Answer Options:
a. True
b. False
Answer:
a. True