Financial Statement Analysis MBA 6th

University of Education, Lahore
Multan Campus, Bosan Road Multan

Complete Course Name: Financial Analysis Course Code:
Program: ……MBA 3.5……….. Semester: 6th Shift: Morning Section:
Total Marks: 18 Time: 20 Minutes Instructor Name: Shahzad Sadiq
Student Name: _______________________________ Roll No. ____________________

1- Which of the following is not a true statement concerning corporation?
a) A corporation is a distinct legal entity. c) The corporation has unlimited life.
b) The shareholders' liability is limited to their investment d) None of above
2-If a firm’s debt ratio is 45%, this means _____ of the firm’s assets are financed by equity
financing.
a) 50% b) 55%
c) 45% d) Cannot be determined without more information
3- Which of the following statement is TRUE regarding debt?
a) Debt is an ownership interest in the firm.
b) Unpaid debt can result in bankruptcy or financial failure.
c) Debt provides the voting rights to the bondholders.
d) Corporation’s payment of interest on debt is fully taxable.
4-The market price of a share of common stock is determined by:
a) The board of directors of the firm. b) The stock exchange on which the stock is listed.
c) The president of the company. d) Individuals buying and selling the stock
5- DuPont analysis includes the following ratios.
a) ROA,ROE b) TIE,ROE
c) TIE, ROA d) None of above
6- Which of the following is not part of current asset?
a) Cash b) Bank balances
c) Marketable securities d) Land
7-Current liabilities include.

a) Short term receivable b) Short term payables
c) Long term payables d) None of above
8- Liquidity ratio includes.
a) Current ratio b) Quick (Acid-Test) ratio

c) (a) and (b) d) Net profit margin
9-A stock dividend:
a) Does not change the value of stockholder's equity.
b) Decreases the value of stockholder's equity
c) Increases the value of stockholder's equity.
d) None of the above
10- Bonds that do not pay any interest rate are considered as
a) interest free bond b) zero coupon bond
c) Price less coupon bond d) useless price bonds
11-If the current ratio stands at 2 : 1 an equal increase in current assets and current liabilities
would ------- the current ratio.
a) Decreases b) Increases
c) Not change d) Cause fluctuations in
12-Acid test ratio should normally be ----
a) 2:1 b) 1:1
c) 1:2 d) 2:2
13-if cost of goods sold is Rs. 100,000, other; operating expenses are Rs. 20,000 and total net
sales are Rs. 150,000 the operating ratio will be equal to ____
a) 70% b) 80%
c) 90% d) 100%
14-Which one of the following is an example of sources of funds?
a) Decreases in share capital b) Increase in long term liabilities
c) Decrease in long term liabilities d) Increase in fixed assets
15-EPS is calculated as
a) EBIT / Equity shares b) (EBIT-Preference Dividend)/Equity Shares
c) EIT / Equity shares d) (EAT - Preference Dividend) / Equity shares
16-Which one of the following ratios is most important for judging the long-term solvency of a
firm?
a) Debt-Equity Ratio b) Stock Turnover Ratio
c) Return on Investment d) Fixed Assets Turnover Ratio
17-Which of the following statements is true in relation to liabilities?
a) Claims against the resources.
b) Currently existing obligations which the firm intends to meet at some time in the
future
c) It must be capable of being expressed in money terms.
d) All of the above
18- Companies can raise cash to finance their investment activities by
a) Making dividend payments b) Selling or issuing financial instruments
c) Buying back their financial instruments d) not producing goods during the current quarter.
University of Education, Lahore
Multan Campus, Bosan Road Multan
Complete Course Name: Financial Analysis Course Code:
Program: ……MBA 3.5……….. Semester: 6 th Shift: Morning
Total Marks: 42 Time: 100 Minutes Instructor Name: Shahzad Sadiq
Student Name: _______________________________ Roll No. ____________________
Answer the following Short Questions 6*3= 18

Q 2: Current asset and current liabilities of companied R and T are summarized as follows
Company R Company T
Current assets $ 400,000 $ 800,000
Current Liabilities $ 200,000 $ 400,000
Evaluate the relative liquidity of companies R and T
Q 3: Discuss how debt ratios effect profitability of the organization?
Q 4: Bauman Company’s total current assets, total current liabilities, and inventory for
each of the past 4 years follow
2000 2001 2002 2003
Total current assets $16,950 $21,900 $22,500 $27,000
Total current liabilities 9,000 12,600 12,600 17,400
Inventory 6,000 6,900 6,900 7,200
a. Calculate the firm’s current and quick ratios for each year. Compare the resulting time series
for these measures of liquidity?
Q 5: Define 1) Outstanding Shares 2) Inventory Turnover 3) Stock dividend
Q 6: Differentiate between gross profit and net profit?
Q 7: What do you know about Duo pond analysis?
Long Questions 4*6= 24
Q 8: The following information is available on the Vanier Corporation;
Balance Sheet as of December 31,2016( in thousands)
Cash and Marketable Securities $ 500 Account Payable $ 400
Account Receivables ? Bank Loan ?
Inventories ? Accruals 200
Current Assets ? Current Liabilities ?
Long Term Debt 2,650
Net Fixed Assets ? Common Stock and Retained Earnings 3,750
Total Assets ? Total Liability and Equity ?
Other Information
Current Ratio 3 Average collection Period 45 Days
Inventory Turnover Ratio 3 Total Liabilities = Shareholder Equity
Net Profit Margin 7% Sales $ 8000
Q 9: The following information was in the annual report of Smith and Jones Inc.
EPS= $ 1.08 Cash dividend per common share=$ 0.80 Net income=$ 32,094,000
Market price per common share =$ 12.94 Common Shares outstanding=25,380,000
Total assets=$ 1,264,086,000 Total liabilities=$ 823,758,000
Non-redeemable preferred stock=$ 16,3600,000 Preferred dividend=$ 4,567,000
Required: compute the following 1) Percentage of earning retained 2) Price/ Earnings ratio
Q 10: ABC company has sale level of Rs 280000 with a 10% profit margin before interest and
taxes. To generate this sale volume firm maintain a fixed Asset investment of Rs 100000.
Currently firm maintains Rs 50000 in current Assets.
a) Determine the total asset turnover for the firm and compute rate of return on total assets
before taxes.
b) Compute before tax rate of return on assets starting with Rs 10000 and increasing in Rs
15000 increments to Rs 100000.
Q 11: The following financial data were taken from the annual financial statement of Smith
Corporation
Current Assets $ 450,000 Current Liabilities $ 390,000
Sales $ 1,450,000 Cost of goods sold $ 1,180,000
Inventory $ 280,000 Account Receivable $ 120,000
Required: calculate 1) Acid test ratio 2) Account receivable turnover
3) Inventory turnover in days.

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University of Education, Lahore

Multan Campus, Bosan Road Multan

Student Name: ___________ Roll No.

7-Current liabilities include.

a) Current ratio b) Quick (Acid-Test) ratio

Answer the following Short Questions 6*3= 18

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