Name: 
 

BAF: Financial Analysis


Multiple Choice
Identify the choice that best completes the statement or answers the question.
 

 1. 
What is meant by the term "circular flow" of the economy?
a.
It’s a reference to the metaphor of how money goes down the drain when it’s misspent
b.
It’s a reference to how money flows back and forth between providers of the factors of production, and those who use those factors to produce.
c.
It’s how government taxes people, then spends that money on people.
d.
It’s the nature of the economy to cycle through booms and then recessions, followed by booms again.
 

 2. 
Which of the following is not a factor of production?
a.
Land
b.
Labour
c.
Raw Materials
d.
Financial Markets
e.
Capital
 

 3. 
Who buys the factors of production?
a.
Governments
b.
Households
c.
Foreigners
d.
Firms
e.
All but households
 

 4. 
Why is it important that the economy is: i) circular, and ii) flows?
a.
It means everything is in balance
b.
It means that money received, if not spent, will shrink the flow
c.
It means government interferes in the flow
d.
Economies should get involved with foreign trade
 

 5. 
Where would a company go if it wanted to borrow money for a project, but didn't want to use a bank?
a.
Stock Market
b.
Bond Market
c.
Currency Market
d.
Commodity Market
 

 6. 
Which of the following is where a corporation would go to issue new shares to raise money for an expansion project?
a.
Stock Market
b.
Bond Market
c.
Currency Market
d.
Commodity Market
 

 7. 
As a merchant you arrange to import a large shipment of products from Italy. When the deal is made, you arrange payment through your bank. To complete this transaction your bank needs to swap funds in the:
a.
Stock Market
b.
Bond Market
c.
Currency Market
d.
Commodity Market
 

 8. 
What function do capital markets serve in our economy?
a.
They allow businesses to raise funds from investors
b.
They allow businesses to borrow money
c.
They encourage investment and lending by providing a secondary market for liquidity
d.
They facilitate international trade
e.
They enable businesses to lock in prices for resources so they can plan ahead
f.
All of the above
g.
None of the above
 

 9. 
Which of the following is NOT an equity investment
a.
Common Shares/Stock
b.
Real Estate
c.
Owning a Partnership
d.
Equity Mutual Fund
e.
Bond
 

 10. 
Which one of the following is NOT a debt investment:
a.
Bond
b.
GIC
c.
Bank Savings Account
d.
Shares of Apple Inc.
e.
Canada Savings Bonds
 

 11. 
Which of the following is NOT a key characteristic of debt investments?
a.
They pay interest
b.
The owner of a debt investment is actually a lender
c.
A debt investment is usually less risky than an equity investment
d.
Income streams coming from debt investments is taxed at a reduced rate
 

 12. 
Which of the following is NOT a key characteristic of equity investments?
a.
They pay dividends
b.
The owner of an equity investment is a part owner in a corporation, and has the right to a share of that company’s wealth and profit or loss.
c.
An equity investment is usually less risky than a debt investment
d.
Income streams coming from equity investments are taxed at a reduced rate
 

 13. 

When the price of a good falls, what happens to the quantity demanded?
a.
It stays the same
b.
It falls
c.
It rises
d.
It raises the demand curve (right shift)
e.
It raises the supply curve
 

 14. 
What happens to quantity demanded when the price of a good rises?
a.
It stays the same
b.
It falls
c.
It rises
d.
It raises the demand curve (right shift)
e.
It raises the supply curve
 

 15. 
Which of the following shifts the demand curve to the right, known as "AN INCREASE IN DEMAND"?
a.
Decrease in popularity of a good
b.
Fall in the price of a good
c.
Emigration
d.
Increase in families’ disposable income
e.
Fall in the price of substitutes
 

 16. 
When the price of a good rises, what happens to the quantity supplied by producers?
a.
It stays the same
b.
It falls
c.
It rises
d.
It raises the demand curve (right shift)
e.
It raises the supply curve (shift right)
 

 17. 
Which one of the following will raise supply (shift supply curve to the right).
a.
A fall in the market price for the good
b.
A fall in production costs
c.
Fewer producers in the industry
d.
An increase in consumer incomes
e.
Higher demand for the good
 

 18. 
On a filled candle, what does the very top of the highest wick represent?
a.
The highest price for the day
b.
The lowest price for the day
c.
The stock’s opening price
d.
The stock’s closing price
 

 19. 
On a filled candle, what does the lowest point on the bottom wick represent?
a.
The highest price for the day
b.
The lowest price for the day
c.
The stock’s opening price
d.
The stock’s closing price
 

 20. 
On a filled candlestick, what does the highest point on the candle (not the wick) represent?
a.
The highest price for the day
b.
The lowest price for the day
c.
The stock’s opening price
d.
The stock’s closing price
 

 21. 
On a hollow candlestick, what does the lowest point on the candle (not the wick) represent?
a.
The highest price for the day
b.
The lowest price for the day
c.
The stock’s opening price
d.
The stock’s closing price
 

 22. 
What does a red coloured candlestick mean?
a.
The stock closed higher than it opened
b.
The stock closed lower than it opened
c.
The stock closed higher than yesterday
d.
The stock closed lower than yesterday
 

 23. 
What does a green (black in the video) coloured candlestick mean?
a.
The stock closed higher than it opened
b.
The stock closed lower than it opened
c.
The stock closed higher than yesterday
d.
The stock closed lower than yesterday
 

 24. 
A stock that opened higher than yesterday, then fell all day to close just above yesterday's closing price will:
a.
Be green and filled
b.
Be green and hollow
c.
Be red and filled
d.
Be red and hollow
 

 25. 
A stock that opened well below yesterday's close and then rose all day to close just below yesterday's closing price will:
a.
Be green and filled
b.
Be green and hollow
c.
Be red and filled
d.
Be red and hollow
 

 26. 
What are the two main methods of financial analysis?
a.
Mean and median
b.
Stock price and common size analysis
c.
Common size analysis and ratio values
d.
Financial stats and common size values
 

 27. 
To calculate common size analysis values for the balance sheet, you divide all values by:
a.
Total revenue
b.
Total assets
c.
All cash
d.
Total equity
e.
Total profit
 

 28. 
To calculate common size analysis values for the income statement, you divide all values by:
a.
Total assets
b.
Total revenue
c.
All cash
d.
Total equity
e.
Total profit
 

 29. 
When you compare a company's income statement values in a common size analysis over several years, you divide each item by:
a.
The last year’s total revenue
b.
The first year’s total revenue is always the denominator
c.
That year’s total revenue
d.
Total sales
e.
An average of all  years’ total revenue values
 

 30. 
The the main advantage of conducting a common size analysis is:
a.
It’s easy to calculate on a spreadsheet
b.
It makes very different values comparable
c.
It lets you do financial analysis
d.
It’s a widely used technique
 

 31. 
Once you have calculated your common size values, you must:
a.
Look for trends and values that stand out
b.
Look for the highest values
c.
Total up your columns
d.
Make sure debits and credits balance
e.
Compare the finances of different companies
 

 32. 
With which types of financial statistics can you use trend analysis?
a.
Common size values
b.
Ratio values
c.
Dollar values
d.
All of the above
e.
None of the above
 

 33. 
At which point is it best to do a trend analysis?
a.
After calculating all financial statistics
b.
Once you’ve calculated common size analysis
c.
After calculated financial ratios
d.
After acquiring the financial statements
e.
Once you’ve spotted the red flags
 

 34. 
Which of the following is something to look for when doing a trend analysis?
a.
Values are rising over time
b.
Related values like revenue and expense moving farther apart
c.
Values showing no consistent trend
d.
Values standing out as an anomaly in a trend
e.
All of the above
 

 35. 
If a common size value fell from 40% last year to 20% this year, it means that the dollar amount for this item is now less than it was last year.
a.
This is true
b.
This is false
c.
It is not possible to answer without more information
 

 36. 
If a common size value fell from 40% last year to 20% this year, it means that the value of this item as a proportion of the denominator - which is always changing - has fallen.
a.
This is true
b.
This is false
c.
It is not possible to answer without more information
 

 37. 
What is one of the first things that investors will look at when a company's financial statements are released?
a.
Current assets
b.
Ratio
c.
Changes in management
d.
Gross margin
e.
Total revenue
 

 38. 
Before you draw any conclusions about the firm you are examining, what do you have to do?
a.
Double-check your calculations
b.
Call your mom
c.
Look for “red flags”
d.
Look at the stock chart
e.
Compare your results with industry standards
 

 39. 
Which one of the following is not a type of ratio category?
a.
Liquidity/solvency ratios
b.
Efficiency ratios
c.
Borrowing capacity ratios
d.
Cash flow ratios
e.
These are all ratio categories
 

 40. 
Which one of the following is a definition of solvency?
a.
Ability to pay your debts when they come due
b.
Being flush with cash
c.
The act of paying off debt
d.
Being debt free
e.
How quickly you can turn your current assets into cash
f.
None of the above
 

 41. 
Why can you not completely rely on the formulas sheet guide for what your ratios values should be as a target value?
a.
Your company may be very large or very small in size, so average guides don’t apply
b.
They are only guides. Some companies may be able to have different levels because they are highly profitable, very efficiency, very stable, etc.
c.
Your company may have had a bad year
d.
Different industries have different situations and require different amounts of debt, assets, etc.
e.
Both B and D are correct
 

 42. 
What does a current ratio of 1.7 mean?
a.
Your company’s in trouble
b.
The firm can’t pay all of its debts this year
c.
This company has enough cash to pay off all of its debt
d.
This business has value in its short term assets equivalent to 170% of how much it owes in the next 12 months.
e.
This firm has 1.7 times more cash than debt owing.
 

 43. 
What is the rationale of the quick ratio?
a.
It only includes items that a company would want to sell
b.
It's an incomplete, less accurate indication of a firm's ability to pay debt
c.
It's gives a better idea of how much wealth could actually be liquidated to pay debt if needed.
 

 44. 
What advantage do most ratio values and common size values have in common?
a.
They are mathematical values
b.
They convert all value representations to a common size or comparable proportion
c.
They have funny names
d.
They are simple division
 

 45. 
Why can't you create some ratios for all years?
a.
The day is short. We all have COD to play.
b.
Financial data isn't always produced for these values
c.
It isn’t necessary
d.
You require two years worth of data to make one years worth of ratios for ratios with average values.
 

 46. 
Which of the following values needed in ratio calculations is often missing in financial reports?
a.
Average accounts receivable
b.
Sales on credit
c.
Cost of goods sold
d.
The operating cycle
 

 47. 
Borrowing capacity ratios are designed to gain an indication of:
a.
 The relative size of a company's debt versus it's assets
b.
How exposed a company is to a sudden increase in interest rates
c.
How much more debt a company could take on
d.
All of the above
e.
None of the above
 

 48. 
Which of the following would efficiency ratios NOT help give you an indication of?
a.
Management's skill
b.
Usefulness of value stored in assets
c.
Ability of a company to generate profit from it's owner's wealth
d.
Changes in market conditions that negatively impact the firm
e.
A company's overall skill at cost minimization
 

 49. 
A company's total debt should never exceed 50% of the value of its total assets.
a.
True
b.
False
c.
It depends
 

 50. 
Times interest earned measures:
a.
How much bigger your cash on hand is than the next year's interest payment.
b.
How much larger your net income is than interest
c.
How much larger the wealth used to pay interest in the period was than interest expense in the period.
d.
None of the above
 

 51. 
ROA (Return on Assets) uses operating income in the numerator instead of net income because:
a.
Other activities like interest expense or disposing of assets, are not the result of using your assets.
b.
Operating income is how much profit you make before you subtract your expenses
c.
Net income doesn't give a good picture of management's performance
 

 52. 
Return ratios (RoA, RoE, RoS) all have which of the following in common?
a.
They all divide by total assets
b.
They all use average values to rate wealth creation
c.
They all measure the rate at which the company generates wealth, given the amount of resources at its disposal.
d.
They all use rates of Net Income to gage management performance quickly, rather than trying to investigate all the situations that took place during the year.
e.
None of the above
 

 53. 
What is the fundamental difference between solvency ratios, and efficiency ratios?
a.
Efficiency ratios tend to measure performance over the period, solvency ratios tend to measure the situation a company is in right now.
b.
Solvency ratios measure risk, efficiency ratios and borrowing capacity ratios do not.
c.
Solvency ratios are about cash flow, efficiency ratios measure wealth.
d.
None of the above
 



 
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