FOREIGN TRADE UNIVERSITY MID-TERM EXAM

FACULTY OF BANKING AND FINANCE TCH424E(2324-2)1.1

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DEPARTMENT OF CORPORATE FINANCE

Period: 1 Semester: 2 Year: 2023 – 2024

Full name: ……………………………………… Date: 15/03/2024
Student ID: …………………………………….. Time: 35 Minutes

Check (x) on the most appropriate answer for the following questions
QUESTION a b c QUESTION a b c
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 1. Which of the following best describes the objective of financial statement audits?
A. Prevent management from engaging in fraud.
B. Guarantee that statements are true and presented fairly.
C. Evaluate the probability that statements are free of material errors.
2. The role of a balance sheet is best described as a way to convey information about a company's:
A. cash inflows and outflows.
B. performance and profitability.
C. resources and claims on resources.
3. Based on the financial statement analysis framework, which of the following is least likely a
source of information when collecting input data?
A. Industry and economic data
B. Financial statement forecasts
C. Discussions with management
4. The notes to a company's financial statements most likely contain:
A. details on the company's strategic objectives.
B. accounting estimates used in the statements' preparation.
C. an evaluation of the appropriateness of the statements' presentation.
5. Income statement elements most likely reflect:
A. values at a point in time.
B. performance over a certain period
C. inflows and outflows of cash transactions.
6. An analyst collects the following year-end data on a company:

The company's operating profit margin is closest to:

A. 9.0%
B. 11.5%
C. 16.0%
7. An analyst reviews a company's fiscal year-end common-size income statement:

There are no other operating costs. If the annual research and development expense is ¥150
billion, then the company's operating profit is closest to:
A. ¥1,829 billion
B. ¥1,899 billion
C. ¥1,979 billion
8. A company receives CHF 500 today from a customer for a product that it will deliver two
weeks from now. The company should most appropriately recognize CHF 500 of:
A. Revenue today.
B. Unearned revenue today.
C. Cash two weeks from today.
 9. An analyst compiles the following information on a company:

The analyst decides to use a common-size income statement to evaluate the company. After the
necessary adjustments are made, which of the following was the greatest contributor to the
company's net profit margin expansion in 20X2?
A. Greater gross margin percentage
B. Smaller proportion of interest expenses
C. Smaller proportion of selling, general, and administrative expenses
10. An analyst collects the following information on two companies:

Companies A and B paid common dividends of €200,000 and €250,000, respectively. Company
A's net profit margin is most likely:
A. less than Company B's.
B. equal to Company B's.
C. greater than Company B's.
11. A company's 20X6 income statement is:
 On the company's 20X6 common-size income statement, rent expense is closest to:
A. 5%
B. 10%
C. 33%
12. A company reported a goodwill impairment of USD 800 million for the first quarter ending
20X2. Based on only this information, it is most likely that:
A. net income was unaffected by the impairment.
B. investing cash flow was reduced by the amount of impairment.
C. management overpaid for one or more acquisitions in the past
13. An analyst gathers the following data:

Which of the following companies most likely has the greatest ability to pay its current liabilities
based on the quick ratio?
A. Company A.
B. Company B
C. Company C
14. An analyst compiles the following common-size balance sheet items for a company:
 Based only on the data above, the most appropriate conclusion the analyst can draw is that
compared to 20X8, in 20X9 the company has:
A. increasing solvency risk.
B. a more liquid asset base.
C. not make any acquisitions.
15. An analyst collects the following year-end information on three companies:

On its common-size balance sheet, which company most likely reports the highest percentage of
inventory?
A. Company X
B. Company Y
C. Company Z
16. An analyst compiles the following financial data for two companies:
 Based only on this data, which ratio indicates that Company A has a greater risk of being unable
to meet its short-term obligations than Company B?
A. Cash ratio
B. Quick ratio
C. Current ratio
17. Over multiple fiscal years, a company's historical common-size balance sheets most likely
reflect a change in:
A. Financial leverage
B. Operating cash flow
C. Cross – sectional profitability
18. A portfolio manager gathers the following data:

If the company has no other long-term debts, its long-term debt-to-equity ratio is closest to:
A. 0.38
B. 0.48
C. 1.08
19. An acquiring company purchases a target company. The goodwill created from the transaction
is best described as the difference between the acquirer's purchase price and the target company's:
A. book value of equity.
B. fair value of net assets.
C. market value of common stock.
20. An analyst gathers the following information for a company:
 Based on this information, the company's debt-to-capital ratio for 20X8 is closest to:
A. 0.50
B. 0.56
C. 0.60
21. A company provides the following balance sheet information:

Compared to the prior year, a current year common-size balance sheet would most likely show
a(n):
A. increase in current assets.
B. increase in common stock.
C. decrease in current liabilities
22. An analyst evaluates the solvency of three companies and gathers the following information:

Based on the companies' financial leverage ratios, which company has the greatest ability to meet
long-term obligations?
A. Company X
B. Company Y
C. Company Z
 23. A company reports under US GAAP. The company's common-size balance sheet for 20X6 and
20X5 is listed below:

Assuming total assets remained the same from 20X5 to 20X6, which statement most accurately
describes what occurred during 20X6?
A. Working capital increased.
B. The company made an acquisition.
C. The financial leverage ratio decreased
24. An analyst gathers the following information:

Based on this information, and assuming there are no other current assets, the company with the
largest quick ratio is most likely:
A. Company X
B. Company Y
C. Company Z
25. An analyst gathers the following information (in € millions) about a manufacturing company
Cost of sales 150
Gross profit: 100
Selling, general, and administrative expenses: 30
 Based only on this information, applying vertical common size analysis to the income statement,
selling, general and administrative expenses are:
A. 12%.
B. 20%
C. 30%