+ All Categories
Home > Documents > Essentials Quizzes

Essentials Quizzes

Date post: 29-Jan-2016
Category:
Upload: himanshu-kumar
View: 249 times
Download: 0 times
Share this document with a friend
Description:
jjj
Popular Tags:
45
© C. SERVEY & Dr. E. PRINZ Page 1 ESSENTIAL CONCEPTS IN FINANCIAL ANALYSIS WITH ANSWERS C SERVEY FINANCIAL STATEMENTS FINANCIAL ANALYSIS STOCK MARKET ANALYSIS Quiz 1 TO 10 QUESTIONS IN BOLD BLUE WILL BE TREATED IN CLASS
Transcript
Page 1: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 1

ESSENTIAL CONCEPTS IN FINANCIAL

ANALYSIS WITH ANSWERS

C SERVEY

FINANCIAL STATEMENTS

FINANCIAL ANALYSIS

STOCK MARKET ANALYSIS

Quiz 1 TO 10

QUESTIONS IN BOLD BLUE WILL BE TREATED IN

CLASS

Page 2: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 2

Quiz 1

FINANCIAL STATEMENTS

Select the correct answer(s).

1) A corporation belongs to…

a) its managers.

b) its shareholders.

c) its board directors.

d) its employees.

2) Which financial statement is the first source of answer to the following question: “have

we made a profit?”

a) The attachment to the accounts (notes)

b) The cash flow statement

c) The directors’ report

d) The profit and loss statement

e) The balance sheet

f) The statement of changes in equity

2) Why was it necessary to develop financial standards to follow in the preparation of the

annual financial accounts?

a) New anti fraud legislation

b) Need for greater profitability

c) Increasing division between ownership and management of the business

d) Growing and faster computer technology

3) A person who certifies that the books have been prepared following agreed standards

and that the accounts represent a true and fair view of the business is a…

a) finance director

b) managing director

c) management accountant

d) statutory auditor

4) Is the following true: Management accountants look at the past as well as at the future

(analyze past periods and prepare budgets and business plans for future periods)?

a) Not true

b) True

5) Financial statements provide…

a) Information to a variety of stakeholders about the (past) financial performance

of a company.

b) the current value of the firm on financial markets.

Chapter II.1 - Financial statements

Page 3: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 3

ESSENTIAL CONCEPTS IN FINANCIAL

ANALYSIS

C SERVEY

Quiz 2

P&L

Page 4: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 4

Select the correct answer(s).

1) Which is true? The income statement of a firm provides the following information:

a) Revenues and expenses for a given period of time.

b) The amount of cash available at a given date.

c) The amount of tangible assets owned by the firm at a given date.

2) The term “Net profit” corresponds to…

a) Revenues minus cost of goods sold

b) Revenues minus operating expenses.

c) The profit of a firm after interests but before tax.

d) The profit of a firm after tax.

e) The fraction of the profit which is reinvested in the company.

3) Which accounting principle ensures that the treatment of similar events remains the

same from one period to the other?

a) Matching (accruals)

b) Prudence (conservatism)

c) Consistency

d) Going concern

4) Financial analysis identifies four levels of profit in the P&L statement, namely gross

profit, operating profit, ________ and _________. Which two terms are missing?

a) Profit before tax & net profit.

b) Profit after costs of goods sold and net profit.

5) If the 2016 head office’s rent was paid in 2015 which year’s P&L statement will it appear

in?

a) 2014

b) 2015

c) 2016

d) 2017

6) Which one of the following statement is correct? The inclusion of a cost in the P&L

statement depends on whether the resource has been…

a) ordered not whether it has been delivered.

b) paid for not whether it has been delivered.

c) used not whether it has been paid for.

d) paid not whether it has been used.

7) Why is the direct materials costs charge in the P&L statement usually different from

the materials purchases made during the same time period?

a) Because purchases have not yet been paid for.

b) Because the materials costs in the P&L correspond to the stocks consumed

Chapter II.2 –Profit & Loss statement

Page 5: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 5

8) Cumulated profits not distributed are constitutive of…

a) pre tax profit.

b) retained profits.

c) profit after tax.

d) pre tax pre interest profits.

9) Dividends…

a) are usually reinvested in the company.

b) represent the portion of the net income distributed to shareholders.

c) represent the portion of the net income reinvested into the business.

10) Is the following true or false? Retained profits belong to the owners of the company.

a) True

b) False

11) Which of the following charges is the most likely to involve some judgment form the

accountants?

a) Labor costs

b) Bad debt

c) Advertising

12) How would you best define depreciation?

a) An allowance from the taxman.

b) The setting aside of cash for replacement.

c) The spreading of the cost over the estimated life of the asset.

d) The asset’s estimated loss of value since the purchase.

13) EBITDA can be considered as…

a) …the cash generated by the operating cycle.

b) …the cash generated by the operating and investing cycle.

c) …the profit generated by the operating cycle.

d) …the profit generated by the operating and investing cycle.

14) INDICATE WHERE THE FOLLOWING ITEMS APPEAR IN A “BY FUNCTION” IN-

COME STATEMENT

In COGS

Cost of

goods sold

In the EBIT

but below

GROSS

PROFIT

Below the

EBIT

Financial in-

terest

Packaging

costs

Page 6: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 6

Research costs

Distribution

costs

Marketing

costs

Net profit in

equity invest-

ments

Administrative

costs

Corporate in-

come taxes

ANSWERS

In COGS In the EBIT

but below

GROSS

PROFIT

Below the

EBIT

Financial in-

terest

X

Packaging

costs

X

Research costs X

Distribution

costs

X

Marketing

costs

X

Net profit in

equity invest-

ments

X depends on

whether these

investments

have a finan-

cial or an op-

erating nature

Administrative

costs

X

Page 7: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 7

Corporate in-

come taxes

X

15) Based on the following amounts, determine the GROSS PROFIT, the OPERATING PROFIT,

the NET PROFIT

in m€

SALES 1000

COGS -600

SG&A -100

FINANCIAL INTE-REST -100

TAXES -70

Determine:

GROSS PROFIT

OPERATING PRO-FIT

NET PROFIT

ANSWERS

Determine:

GROSS PROFIT

400

300

Page 8: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 8

OPERATING PRO-FIT

NET PROFIT

130

16) If depreciation = 200 m€, what is the EBITDA? ___________________________________

500

Page 9: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 9

ESSENTIAL CONCEPTS IN FINANCIAL

ANALYSIS

C SERVEY

Quiz 3

BALANCE SHEET

Page 10: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 10

Select the correct answer(s).

1) Which is NOT true? The balance sheet of a company indicates the following infor-

mation:

a) The book value of the company at a given date.

b) The book value of the assets of the company at a given date.

c) The market value of the company’s shares at a given date.

2) What is the value of a fixed asset in the balance sheet?

a) An estimate of the market value

b) The replacement cost

c) The original cost less depreciation to date

d) In most cases answer c) and sometimes a) (e.g. IFRS balance sheet when the

revaluation model is used in IAS 36, IAS 38 or IAS 40)

3) What is historical cost?

a) Average second hand value

b) Market value

c) Cost of replacement

d) Cost when bought

4) Which ASSETS of the balance sheet do not belong to current assets?

a) Retained earnings

b) Borrowings

c) Accounts payables

d) Inventory

e) Intangible long-term assets

f) Accounts receivables.

g) Cash & cash equivalents

h) Corporate bonds emitted by the firm

5) If a firm looks for long-term financing, which of the following sources can be mobilized?

a) Equity

b) Inventories

c) Non current financial debt

d) Bonds

e) Short-term borrowings

f) Non current assets

6) Where can the accounting value of a company’s payables be found?

a) Within the category “Non current assets”

b) On the right side of the balance sheet.

c) In the profit and loss statement.

d) Within the category “Equity”.

e) Within the category “Current liabilities”.

Chapter II.3 –Balance Sheet

Page 11: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 11

7) In a balance sheet total assets equal the sum of __________& ___________. The two

missing terms are:

a) equity and dividends.

b) dividends and current liabilities.

c) Equity and liabilities.

d) cash and liabilities.

8) Which of the following is not normally an interest bearing item?

a) Short term loans

b) Long term loans

c) Creditors

d) Debtors

9) Under which category would you record goods finished but not yet sold?

a) Retained earnings

b) Loans

c) Current assets

d) Non current assets

e) Suppliers’ liabilities

10) Fill in the missing word(s): In the financial analysis format of the balance sheet, the

capital employed equals __________.

a) Fixed assets and working capital.

b) Equity + net financial liabilities

c) Working capital.

11) Which of the following terms are the main components of the working capital?

a) Fixed assets + debtors + creditors

b) Share capital + fixed assets and inventories

c) Inventory + accounts receivables and - accounts payables

12) What is the time span on a normal balance sheet?

a) 3 months

b) 3 years

c) One year

d) A period defined by the company

e) None of these

13) Which is true? a. This is a traditional balance sheet

b. This is a capital employed balance sheet

Page 12: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 12

Which is true?

c. This is a traditional balance sheet

a. This is a capital employed balance sheet

Page 13: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 13

14) Based on the following balance sheet:

b. Determine if the business is liquid

c. Determine if the business is solvent

d. Determine the working capital

e. Determine the capital employed

FIXED ASSETS 100 SHARE CAPITAL 40

INVENTORIES 20 RETAINED EARNINGS 60

ACCOUNTS RECEIVABLES 20 LT PROVISIONS 33

CASH AND EQUIVALENTS 53 ACCOUNTS PAYABLES 30

LT FINANCIAL DEBT 10

ST FINANCIAL DEBT 20

TOTAL ASSETS 193 EQUITY & LIABILITIES 193

Page 14: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 14

ANSWERS

Based on the following balance sheet:

a. Determine if the business is liquid: yes Current assets – current liabilities = 93 -50 = 43m€

b. Determine if the business is solvent: yes assets – liabilities = 193 – 93 = 100m€ = net equity

c. Determine the working capital: inventories + accounts receivables – A Payables = 10m€

d. Determine the capital employed: 193 (assets) – 53 (cash) – 33 (LT provisions) -30 (paya-

bles) = 77 m€

It is also the net operating assets i.e. operating assets – operating liabilities = (100 – 33) net

long term op assets + 10 m of working capital

EXERCISE ON CAPITAL EMPLOYED BALANCE SHEET

Based on the following balance sheets establish the CAPITAL EMPLOYED BALANCE SHEET

All amounts in € millions

Page 15: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 15

ANSWERS

Step 1 distinguish between operating items and financial items

All amounts in € millions

Step 2 determine capital employed

Step 3 present the capital employed balance sheet

Page 16: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 16

Page 17: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 17

ESSENTIAL CONCEPTS IN FINANCIAL

ANALYSIS

C SERVEY

Quiz 4

CASH FLOW STATEMENT

Page 18: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 18

Select the correct answer(s).

1) Which is NOT true? The Cash Flow Statement usually indicates…

a. the net cash generated by operating activities.

b. the net cash generated by investing activities.

c. the amount of dividends paid out to shareholders.

d. the gross return of a company.

e. the net cash generated by financing activities.

2) Is the following true or false? A company that is profitable will always generate a posi-

tive cash flow.

a) True

b) False

3) Which of the following economic events generally do not affect a firm’s cash level?

a) A Share issue.

b) Recording of annual depreciation of corporate assets.

c) Sale of inventories against cash.

d) Purchase of raw material on account.

e) Sale of goods and services on account.

4) Is the following true or false: The cash generated in one period will always be equal to

the retained profit of that period.

a) True

b) False

5) Turnover, which is still to be collected appears as:

a) Dividends

b) Debtors (accounts receivables)

c) Retained earnings

d) Creditors (accounts payables)

e) Unsold finished goods

6) A feature of a supermarket chain such as Tesco or Ahold is a very fast rotation of food

stocks (six days), cash payments by customers, long supplier credit periods (60 days)

and very low administrative costs. Will the operating cycle generate cash requirements

or a cash surplus?

a) cash requirements

b) cash surplus

7) Fill in the missing term: Operating cash flow = operating income - change in working

capital + _________________.

a) Dividends

b) Depreciation

Chapter II.4 –Cash Flow statement

Page 19: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 19

c) Current assets

d) Cash equivalents

8) Is the following true or false: All other things being equal an increase in working capital

triggers an increase in cash flow.

a) True

b) False

6) Is the following true or false? Cash flow is generated only from profits.

a) False

b) True

7) Which of the following will have a favorable impact on cash flow?

a) Delay payments to creditors

b) Reduce the debtor collection period

c) Increase depreciation rates

d) Increase spending on fixed assets

8) Is the following true or false: All other things being equal an increase in fixed assets

triggers an increase in cash flow.

a) True

b) False

16) Should the company be able to spend the operating cash flow surplus as it likes?

a) Yes, this is up to the managers

b) No the stakeholders such as the lenders and shareholders will demand a com-

pensation to keep on financing the business

17) Determine if each of the following items have an influence on the company’s cash position ap-

pearing in the cash flow statement.

a) Depreciation and amortization

Yes / No

b) Corporate income tax

yes / No

c) Capital increase through cash contribution

yes / No

d) Cash purchase of fixed assets

Yes / No

e) Recognition and payment of salaries

Yes / No

f) Disposal for cash of an asset at its book value

Yes / No

g) Sale of goods on credit

Yes / No

h) Payment for these goods

Page 20: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 20

Yes / No

i) Repayment of medium-term loan

Yes / No

j) Financial expenses

yes / no

EXERCISE 1

ANSWERS

EXERCISE 2 Based on the following balance sheets

Page 21: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 21

And the following P&L

Determine using the following formulas:

The net cash from operating activities

The net cash from investing activities

The net cash from financing activities

The net cash flow

Page 22: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 22

Page 23: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 23

ANSWERS

Page 24: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 24

ESSENTIAL CONCEPTS IN FINANCIAL

ANALYSIS

C SERVEY

Quiz 5, 6 and 7

EFFICIENCY

PROFITABILITY ANALYSIS

ROCE & EVA

Page 25: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 25

Chapter III.2 - Profitability analysis Select the correct answer(s).

1) Profit margin can be considered…

a) as a projected value of the business’s operating profit.

b) as a measure of a business’s ability to generate operating profit from its sales.

c) as a measure of the business’s profits.

2) Which of the following elements would not concern a manager in charge of the operating side

of the business?

a) The tax liability on the achieved profits

b) Variable costs

c) The interest to be paid to the bank on the a contracted financial liability (loan)

3) Your major competitor has a profit margin of 5 % and you anticipate your profit margin to be

2.5 %. If you expect your absolute profit to be the same as your competitor’s, how much do you

have to sell? (Assumption: no fixed costs)

a) The same quantity than your competitor

b) Half as much

c) Twice as much

d) Five times as much

e) Ten times as much

4) Assume the following: 25,000 items are produced and sold. The unit selling price is 20 €. Unit

costs of goods sold is 12.50 €. Marketing and administration costs are 87,500 €. What will be the

operating margin of the business?

a) 5 %

b) 10 %

c) 15 %

d) 20 %

e) 25 %

f) 30 %

5) Which is not true? An increase of the operating profit margin of a company…

a) is automatically followed by a higher net profit margin.

b) indicates that a firm’s core business has become more profitable.

c) Is possible even with a decreasing gross profit margin.

6) Is the following true or false: the EBIT margin is always higher than the EBITDA margin

a) True

b) False

Page 26: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 26

Chapter III.3 - Efficiency analysis Select the correct answer(s). 1) Consider the following data and calculate the asset turnover of the company: Turnover =

100, Net assets = 10

ASSET TO = 100/10 = 10

2) Is the following true: a high Fixed Asset turnover always means that a small amount of

money has been invested in the business in CAPEX

a) True

b) False

3) Assume that the capital employed in one company is 1 m € and that the asset turnover is 6.

Are the sales for this business:

a) Over 4 m€

b) Under 4 m €

4) Is the following true: ASSET TURNOVER = Turnover/Capital employed = Sales/Net assets

a) True

b) False

5) Is the following true: the only way to improve Asset Tturnover is to increase turnover

a) True

b) False

6) Is the following true: if the following business would sell cash rather than on credit, its asset

turnover would increase from 1 to 1,5 (stocks 200 Debtors 100 creditors 100 sales 300)

a) True

b) False

7) Which of these will NOT increase a business’s asset turnover:

a) Increasing production which is then sold

b) Avoiding the purchase of new fixed assets by working existing assets to greater capacity

c) Increasing production which goes into stock

d) Selling off Fixed assets and replacing their production by working existing assets to

greater capacity

e) Depreciating assets quicker and therefore writing them down to smaller values

8) Given the following data, the number of times that the stock has been turned over in year 2

as compared to year 1 has:

a) Increased

b) Decreased

c) Stayed the same

9) Which is false? asset turnover :

YEAR 1 YEAR 2

TURNOVER 500 550

STOCK 50 50,5

Page 27: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 27

a) Will look good if a company has sold fixed assets

b) Measures efficiency of asset utilization in a company

c) Is not industry sensitive

Chapter III.4 – RoCE & EVA Select the correct answer(s).

1) Calculate ROCE expressed as a %: OP = 10 m Capital Employed = 20 m ROCE = 50%

2) Where do you get the information needed to calculate the ROCE of your business?

a) Balance sheet

b) P&L

c) CF

3) Fill in the missing words: ROCE = operating profit /

a) Equity

b) Capital Employed

c) Sales

d) COGS

4) Is the following true or false: ROCE is the link between profit and the assets used to run the

business

a) True

b) False

5) ROCE is calculated using which two elements:

a) Gross Profit

b) Operating profit

c) Net assets

d) Asset turnover

e) Capital Employed

f) Sales

6) Is the following true or false: financing charges are excluded from the numerator of the

ROCE ratio because this ratio is designed to measure the operating performance of the busi-

ness

a) True

b) False

Chapter III.4 continued– EVA Select the correct answer(s).

1) Which of the following is true? EVA is computed as:

a) The after tax Operating Profit minus a financing charge amounting to Capital Employed

times the after tax cost of debt

b) The after tax Operating Profit minus a financing charge amounting to Capital Employed

times the WACC

Page 28: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 28

c) The difference between the ROCE and the WACC, times the Capital Employed

d) The difference between the after tax ROCE and the WACC, times the Capital Em-

ployed

e) Answer a and d

f) Answer b and c

g) Answer a and c

h) Answer b and d

2) Is the following true? If A and B are two businesses with the same WACC, then the business

with the higher after tax RoCE will also necessarily be the business delivering the higher

EVA.

a) True

b) False

3) Is the following true? Provided that the capital employed is positive, a business delivering an

after tax ROCE which is higher than the WACC, will generate a positive amount of EVA

a) True

b) False

4) Which of the following is true?

a) ROCE is a pure accounting measure

b) EVA is a pure accounting measure

c) EVA takes the risk into account

d) One of the advantages of the EVA, is that it is not a pure accounting measure

e) Answer c and d

f) Answer a c and d

g) Answer b c and d

h) Answer b and c

5) Is the following true?

In businesses, which have adopted EVA instead of ROCE as the financial performance measure,

managers tend to be less reluctant to invest into new projects, and this is crucial for future business

growth

a) True

b) False

6) Is the following true?

Managers who receive an EVA target can consider it as a target of net profit since EVA is the after

tax operating profit minus a financing charge.

a) True

b) False

7) Is the following true?

CSV (Created Shareholder Value) measures the value creation for a shareholder (dividend

and share price appreciation) and compares it to the expected shareholder return (share

price times cost of equity)

a) True

b) False

8) Is the following true?

In the long turn, economic indicators such as the EVA are easier to manipulate than ac-

counting indicators such as the ROCE

Page 29: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 29

a) True

b) False

Page 30: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 30

FINANCIAL ANALYSIS

ALL FIGURES IN K€

YEAR 1 YEAR 2

FIXED ASSETS 2 405 2 632

CURRENT OP ASSETS 1 447 1 863

Stocks 848 1 251

debtors 568 594

tax receivable 31 18

CURRENT OP LIABILITIES 862 997

creditors 740 862

tax owing 74 82

Other ST operating liability 48 53

NET ASSETS = (FIXED ASSETS + NET

CURRENT OPERATING ASSETS ) 2 990 3 498

Share capital 99 99

Retained profits 1 821 1 963

SHAREHOLDERS FUNDS 1 920 2 062

Loan 1 070 1 436

CAPITAL EMPLOYED 2 990 3 498

DETERMINE each of the following amounts/percentages and indicate for each measure whether the

situation is improving or deteriorating (favorable or unfavorable trend) over the period:

1. The OPERATING MARGIN

2. The WORKING CAPITAL

3. The ASSET TURNOVER

4. The FIXED ASSET TURNOVER

5. The WORKING CAPITAL TURNOVER

6. INVENTORIES (STOCKS) EXPRESSED IN DAYS OF SALES

Page 31: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 31

7. ACCOUNTS RECEIVABLES (DEBTORS) EXPRESSED IN DAYS OF SALES

8. ACCOUNTS PAYABLES (CREDITORS) EXPRESSED IN DAYS OF SALES

9. The ROCE

10. The ROE

11. The EVA (WACC = 9.5% and tax rate = 38%)

12. The gearing (NET DEBT/EQUITY)

Year 1 Year 2

OPERATING MARGIN

WORKING CAPITAL

ASSET TURNOVER

FIXED ASSET TURNOVER

WORKING CAPITAL

TURNOVER

INVENTORIES (STOCKS)

EXPRESSED IN DAYS OF

SALES

ACCOUNTS RECEIVA-

BLES (DEBTORS) EX-

PRESSED IN DAYS OF

SALES

ACCOUNTS PAYABLES

(CREDITORS) EXPRESSED

IN DAYS OF SALES

Page 32: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 32

ROCE

ROE

EVA

gearing: (net debt/equity)

ANSWERS

Year 1 Year 2

OPERATING MARGIN

478/7828= 6.1%

541/9790= 5.5%

WORKING CAPITAL

1447-862= 585 k€

1863-997 = 866 k€

ASSET TURNOVER

7828/2990 = 2.62

9790/3498 = 2.8

FIXED ASSET TURNOVER

7828/2405 = 3.25

9790/2632 = 3.72

WORKING CAPITAL

TURNOVER

7828/585 = 13.38

9790/866 = 11.3

INVENTORIES (STOCKS)

EXPRESSED IN DAYS OF

SALES

848/7828*360= 39

1251/9790*360= 46

Page 33: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 33

ACCOUNTS RECEIVA-

BLES (DEBTORS) EX-

PRESSED IN DAYS OF

SALES

568/7828*360= 26

594/9790*360= 22

ACCOUNTS PAYABLES

(CREDITORS) EX-

PRESSED IN DAYS OF

SALES

740/7828*360= 34

862/9790*360= 32

ROCE

478/2990=16%

541/3498 = 15.5%

ROE

263/1920 = 13.7% 291/2062 = 14.1%

EVA

((16%*(1-38%))-9.5%)*2990 =

12.31 k€

((15.5%)*(1-38%)-

9.5%)*3448=3.11 k€

gearing: (net debt/equity)

1070/1920 = 56% 1436/2062 = 70%

Page 34: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 34

FIN ANALYSIS EXERCISE

Given the following figures (page 9), please calculate for each year, the following financial indica-

tors for your business (indicate the numerator & denominator for each ratio and the ratio itself)

Operating Profit Margin Year 1 = __________________

Operating Profit Margin Year 2 = __________________

Is it improving, deteriorating or staying the same?

Please calculate the following WORKING CAPITAL indicators:

Number of days of sales held in inventories, year 1 = _________________

Number of days of sales held in inventories, year 2 = _________________

Is it improving, deteriorating or staying the same?

Number of days of sales outstanding in accounts receivables year 1 = __________________

Number of days of sales outstanding in accounts receivables year 2 = __________________

Is it improving, deteriorating or staying the same?

Number of days of sales in accounts payables year 1 = _________________________

Number of days of sales in accounts payables year 2 = _________________________

Is it improving, deteriorating or staying the same?

Please calculate the:

Net Asset Turnover Year 1 = _____________________

Net Asset Turnover Year 2 = _____________________

Is it improving, deteriorating or staying the same?

Please calculate directly the:

Page 35: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 35

RoCE Year 1 =______________________

RoCE Year 2 = ______________________

Please calculate indirectly the RoCE using other ratios calculated here above

RoCE Year 1 =______________________

RoCE Year 2 = ______________________

How do you explain the change in RoCE?

If the WACC remained at 7% in year 1 and 2 please determine for each calendar year THE ECO-

NOMIC VALUE ADDED (EVA). Assume that the tax rate is 23%

EVA year 1 = __________________

EVA year 2 = __________________

Please calculate the gearing ratio: NET DEBT/EQUITY

Gearing year 1= __________________

Gearing year 2 = __________________

Please calculate the ROE

ROE year 1 = ________________________

ROE year 2 = ________________________

Is it improving, deteriorating or staying the same?

Page 36: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 36

ANSWERS

Page 37: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 37

Page 38: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 38

ROE = after tax ROCE + D/E *

(after tax ROCE – after tax In-

terest rate)

Page 39: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 39

ESSENTIAL CONCEPTS IN FINANCIAL

ANALYSIS

C SERVEY

Quiz 8, 9, 10

Risk Analysis, Key Concepts for

Shares, Market Multiples

Page 40: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 40

Chapter III.5 – Risk Analysis Select the correct answer(s).

1) Fill in the missing word: the quick ratio is computed as follows:

[ (CURRENT ASSETS - _inventories_________________) / CURRENT LIABILITIES ]

and needs to be higher than one to ensure liquidity

2) The interest cover ratio expresses either the operating profit or the operating cash flow in years of financial

interest. An interest cover of 4 means

a) That financial interest represents 25% of the operating profit or of the operating cash flow

b) That the operating cash flow or the operating profit represent 4 years of financial interest

c) That financial interest represents 4 years of operating profit or of operating cash flow

d) Answer a and b

3) Is the following true or false: The closer the firm is to its break-even point, the more sensitive its profits to

changes in sales.

a) True

b) False

4) Fill in the missing term: the net debt ratio = (1- the equity ratio) and is computed as:

(________net debt__ / Capital Employed)

5) Is the following true or false: an increase in the relative weight of net financial debt changes the return

on capital employed

a) True

b) False

6) Is the following true or false: low profitability is NOT due to high indebtedness, the causality being the op-

posite. Why?

a) True

b) False

7) Is the following true or false: if there is no corporate income tax, the leverage effect of debt does not exist?

a) True

b) False

OTHER QUESTIONS

Page 41: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 41

8) Is the following true or false: the higher the proportion of fixed costs in the total costs, the riskier the business (and

the lower the quality of earnings), since the operating profit is then highly sensitive to any negative change in

sales

a) True

b) False

9) Is the following true or false: the ability of a firm to repay its debts is first of all measured by its ability to

generate free cash flows?

a) True

b) False

Chapter IV.1 – Key Concepts for Shares Select the correct answer(s).

1) Is the following true or false?

A share is a security that will be necessarily redeemed at a certain point

a) True

b) False

2) Is the following true or false?

The market value of equity = (ENTERPRISE VALUE – MARKET VALUE OF DEBT)

c) True

d) False

3) Is the following true or false?

A share is a riskier security than a bond

a) True

b) False

4) Which statement is true? Earnings Per Share (EPS) is equal to

a) Net earnings / number of shares

b) Net earnings group share / number of shares

5) Which statement is true?

Dividend yield =

a) DISTRIBUTED DIVIDEND / MARKET CAPITALIZATION

b) DIVIDEND PER SHARE / SHARE PRICE

c) DIVIDEND / NET EARNINGS GROUP SHARE

d) Answer a and c

e) Answer a and b

6) Which statement is true? The dividend payout ratio is equal to

a) DISTRIBUTED DIVIDEND / MARKET CAPITALIZATION

b) DISTRIBUTED DIVIDEND / NET EARNINGS TOTAL

Page 42: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 42

c) DISTRIBUTED DIVIDEND / NET EARNINGSS GROUP SHARE (previous year)

7) Is the following true or false?

The higher the dividend payout ratio, the lower future business growth is going to be

a) True

b) False

8) Is the following true or false?

A stock is deemed to be liquid when you can buy or sell a large number of shares without too

great an influence on the price.

a) True

b) False

9) Is the following true or false?

If the price to Book Ratio (PBR) > 1 then RoE > Cost of Equity Ke

a) True

b) False

10) Which is true?

a) A business with a high payout ratio (close to 100%) is a growth stock since a high distri-

bution indicates that managers are confident about the future growth potential of the

business.

b) A growth stock is a business where only a small portion of the earnings is distributed, the

rest being re invested in the business in order to foster sales growth.

OTHER QUESTIONS

11) Is the following true or false?

The revenue flows of a share are certain: every share generates dividends?

a) True

b) False

12) Fill in the missing word: (SHARE PRICE = _market capitalization___________ / NUMBER OF

SHARES)

13) Is the following true or false?

A share usually gives a voting right to the shareholder

a) True

b) False

Page 43: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 43

14) Is the following true or false?

It is possible for a share to give no voting right

a) True

b) False

15) Is the following true or false: EPS measures the value created per share in a given year

a) True

b) False

16) Which is true

a) Gross dividend = dividend received by the shareholder whereas net dividend = dividend –

taxes on dividend paid by the shareholder

b) Gross dividend = dividend received by the shareholder plus tax credit (such as withholding tax

levied abroad)

17) Which statement is true? The dividend yield is based on

a) Market values

b) Accounting values

18) Is the following true or false?

The book equity per share = net equity / number of shares and is equal to the amount invested by

the current shareholders to acquire one share in the company

a) True

b) False

19) Is the following true or false?

If a stock is publicly traded then the free float necessarily represents 100% of the shares

a) True

b) False

Chapter IV.2 – Market Multiples Select the correct answer(s). 1) Which of the following is true?

The EBIT multiple is equal to

a) Enterprise value / EBIT

b) Market capitalization / EBIT

c) Answer a and b

2) The main drivers of the EBIT multiple are:

a) The future EBIT growth

b) The interest rate (the higher the interest rate, the lower the EBIT multiple)

c) The operational and financial risk (the higher the risk the lower the multiple)

d) The operational risk (the higher the risk the lower the multiple)

Page 44: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 44

e) Answer a b and c

f) Answer a b and d

3) The PE ratio is equal to:

a) Market capitalization / EBIT

b) Enterprise value / net earnings

c) Enterprise value / net earnings group share

d) Market capitalization / net earnings group share

4) The main drivers of the PER multiple are:

a) The future EPS growth

b) The interest rate (the higher the interest rate, the lower the EBIT multiple)

c) The operational and financial risk (the higher the risk the lower the multiple)

d) The operational risk (the higher the risk the lower the multiple)

e) Answer a b and c

f) Answer a b and d

5) Which of the following is true?

To value a share you can use the EBIT multiple of the main competitor (provided his operational

risk is comparable), apply it to the business’s EBIT and

a) divide it by the number of shares.

b) Once you have determined the Enterprise Value you must deduct the net financial debt to

determine the Market Capitalization. You can then divide it by the number of shares.

6) Which of the following is true? In a valuation exercise you can use the main competitor’s PER

only provided

a) The EPS growth, the operational risk are comparable

b) The EPS growth, the operational and financial risk are comparable

7) Is the following true or false?

1/PER = earnings group share / market capitalization. If the PER is high then 1/ PER is low and is

usually lower than the required equity rate of return

e) True

f) False

EXERCISES ON SHARES (CHAPTER 27 VERNIMMEN TEXBOOK)

Page 45: Essentials Quizzes

© C. SERVEY & Dr. E. PRINZ Page 45

ANSWERS

ROE


Recommended