CCIM 101 Financial Analysis Questions with Correct Verified Answers;; all bundled to boos, Exams of Real Estate Management

Download CCIM 101 Financial Analysis Questions with Correct Verified Answers;; all bundled to boos and more Exams Real Estate Management in PDF only on Docsity!

CCIM 101 Financial Analysis Questions with

Correct Verified Answers;; all bundled to boost

and ease your study ;; Graded A;; 100%

Guaranteed pass

Define financial analysis - ANSWER A systematic means of determining how well the assets of a business are being managed and controlled. Financial analysis is based on information found in financial statements.The three most commonly used financial statements are: - ANSWER •Income Statement (Statement of Profit and Loss; P and L). •Balance Sheet (Statement of Financial Condition). •Statement of Cash Flows (How much cash you bring in and how much cash you move out). 1.) What does the income statement do? 2.) Basically, it's... 3.) The result is a... - ANSWER 1.) Matches the amounts received from selling goods and services against all the costs and outlays incurred in order to operate the pharmacy. 2.) revenue vs. expenses 3.) net profit or loss for the year. T or F: •The income statement shows you how your business is doing at a specific point of time. - ANSWER False, the income statement is a time-dynamic document prepared for a period of time, not a specific point in time (Typically over a one year period). NOTE: Sales (Revenue) •Sales can be categorized by type (Rx vs. OTC) or payment method (Cash vs. Third Party), etc. - ANSWER NOTE: Sales (Revenue)

•Sales can be categorized by type (Rx vs. OTC) or payment method (Cash vs. Third Party), etc. Components •What is the equation for cost of Goods Sold (COGS). - ANSWER COGS = Beginning inventory + Purchases

• Ending inventory This value determines whether we're managing our inventory properly. When we compare this to sales, the higher the ratio (COGS : Sales) the worse off we're doing in terms of managing our inventory. NOTE: •Paying attention to COGS can help a manager determine whether they are managing inventory properly. - ANSWER NOTE: •Paying attention to COGS can help a manager determine whether they are managing inventory properly. COGS compared to Net Sales. - ANSWER As COGS increases, Gross Profit Margin decreases. A high COGS% may indicate what 5 things? - ANSWER •A need to update inventory. •A high percentage of 3rd party scripts. •Pilferage •Inappropriate pricing •Not taking advantage of cash discounts Gross Margin (GM) is another component of the income statement. What are two equations associated with GM? - ANSWER •GM = Sales - COGS •GM - Expenses = Net Profit The amount where you take the rest of the expenses from. The higher the growth margin, the higher the profitability.

NOTE: Components of the Income Statement (Expenses). •Paying close attention to expense categories is important in financial analysis. •Many items listed as expenses have a relationship to items listed on the balance sheet, and therefore, help to tell a story. - ANSWER NOTE: Components of the Income Statement (Expenses). •Paying close attention to expense categories is important in financial analysis. •Many items listed as expenses have a relationship to items listed on the balance sheet, and therefore, help to tell a story. Note From The Last Slide •"Interest paid" on the income statement relates to "liabilities" on the balance sheet. •"Bad debts" relates to "Accounts Receivables". - ANSWER Note From The Last Slide •"Interest paid" on the income statement relates to "liabilities" on the balance sheet. •"Bad debts" relates to "Accounts Receivables". What is the balance sheet. - ANSWER A statement of all assets, liabilities, and net worth at a particular point in time, usually at the end of the fiscal year. •The balance sheet shows what a company owns and owes on a particular date. What are the three main categories that you'll see on a balance sheet? - ANSWER •Assets (Anything of value owned by a company). •Liabilities (Obligations to be paid to creditors). •Net worth (Equity, owner's equity). Balance Sheet •What are the two equations involved with net-worth? - ANSWER •Assets - Liabilities = NW •Assets = Liabilities + NW Balance Sheet Components

•Assets are divided into what three categories? - ANSWER •Current (Those that can be converted into cash. These are moving, for the purpose of making money. Provides the cash flow for the business). •Fixed/Non-current (Typically don't sell these to get money, if a business needs to sell these then the business might be going out of business). •Other (Intangible) Balance Sheet Components •Define current assets - ANSWER Resources that can be converted into cash or are consumed in the operation of business within one year. •Responsible for providing a cash flow to sustain a firm's day to day operations. Balance Sheet Components: Current Assets 1.) NOTE: Cash is the money on deposit in the bank. 2.) Define accounts receivable 3.) Name one last example of a current asset. - ANSWER 1.) NOTE: Cash is the money on deposit in the bank. 2.) Amounts not yet collected from customers who have been provided services or merchandise (3rd parties, credit customers, etc.) 3.) Inventory NOTE: Fixed Assets •Tangible, productive resources used in the operation of the firm. •Fixed assets have a useful life of more than one year. •Fixed assets can not be sold without seriously disrupting the operations of a business. - ANSWER NOTE: Fixed Assets •Tangible, productive resources used in the operation of the firm. •Fixed assets have a useful life of more than one year. •Fixed assets can not be sold without seriously disrupting the operations of a business.

What is the only fixed asset that does not depreciate? - ANSWER •Land Other fixed assets: •Furniture •Fixtures •Vehicles •Building Name two other non-current (fixed) assets. - ANSWER •Prepaid Expenses (Paying for shit in advance; like paying for insurance). •Deposits on Expenses Define depreciation - ANSWER The decline in the useful value of a fixed asset due to wear and tear and the passage of time (Depreciation is an expense). What is the easiest way to calculate depreciation? - ANSWER The straight line method. e.g: $10,000 car with a 5 year lifespan depreciates $2,000/year. List three intangible assets. - ANSWER •Leases •Franchises •Goodwill (Based on the development of positive relationships over a period of time). Liabilities 1.) Describe current liabilities 2.) Describe long term liabilities. 3.) Define accounts payable (CL). 4.) What are some accumulated expenses (CL):

5.) Define notes payable (CL or LTL): - ANSWER 1.) Obligations payable within a year's time. 2.) Obligations not due for more than one year. 3.) Amount a business owes to its regular business creditors. 4.) Salaries and wages to employees, interest on borrowed funds, attorneys fees, insurance premiums, etc. 5.) Money owed to the bank or other major lender. Net Worth 1.) Net worth is residual or secondary to the... 2.) In the event of liquidation, ___ must be paid before the owners. - ANSWER 1.) claims of creditors. 2.) creditors NOTE: Statement of Cash Flows. •Records the inflow and outflow of cash throughout the fiscal year. - ANSWER NOTE: Statement of Cash Flows. •Records the inflow and outflow of cash throughout the fiscal year. Statement of cash flow is generally divided into what three categories? - ANSWER •Operating: Buying things, selling things. •Investing: If you have a business that's making enough money to be able to invest, that's great. •Financing: Cash you are borrowing from other people. List three examples of financial statement analyses. - ANSWER •Comparative analysis (How do my sales compare to the competitors?) •Trend analysis •Ratio analysis Which of the following is a current asset?

Long-term financial investments Property, plant & equipment Intangibles Inventory - ANSWER Inventory Goodwill is a(n) .......................... Tangible asset Current asset Liability Intangible asset - ANSWER Intangible asset Which of the following is a current liability? Long-term debts Accounts payable Pension liabilities Deferred income taxes - ANSWER Accounts payable Long-term liabilities can be paid (excluding current component): Within one year Within a week Within one month In more than one year - ANSWER In more than one year Which of the following is true? Liabilities = Assets + Equity Equity = Assets + Liabilities Assets = Liabilities + Equity Assets = Liabilities - Equity - ANSWER Assets=Liabilities + Equity

Which of the following accurately describes the book value of a company's assets? Book value is dependent on historical cost of assets Book value is difficult to measure Book value always reflects the current value of a company's assets Book value is a better input to firm valuation than the market value of a company's assets - ANSWER Book value is dependent on historical cost of assets The 'top line' in a profit and loss statement is: Net income/earnings Income tax Operating income Sale revenue - ANSWER Sale revenue Which of the following equations is true? Net sales = Revenue - Expenses Net sales = Gross sales - Selling, general and administrative expenses Net sales = Gross sales - Deductions Net sales = Gross sales - Expenses - ANSWER Net sales = Gross sales - Deductions Which of the following is NOT included in operating income? Income tax Net sales Selling expenses Cost of goods sold - ANSWER Income tax Which of the following must be disclosed in the notes to the profit and loss statement? Disposals of property, plant and equipment or investments Sales revenue Selling expenses

Income tax - ANSWER Disposals of property, plant and equipment or investments The asset section of the balance sheet summarizes: What the company owns Cash transactions Revenues and expenses What the company owes - ANSWER What the company owns Total assets equal: Current assets + non-current assets Cash + accounts receivable Residual claim after all liabilities are repaid Current assets + property plant equipment - ANSWER Current assets + non-current assets Which of the following would NOT be found in the liabilities section of the balance sheet? Pension liability Accounts payable Property plant & equipment Notes payable - ANSWER Property plant & equipment Which of the following equations represents the calculation of a firm's liabilities? Assets - Liabilities - Equity Equity - Assets Assets + Equity Assets - Equity - ANSWER Assets - Equity Which of the following is a key characteristic of a public corporation? Private company Separate ownership and management of assets

Shareholders are also debtholders Full government ownership - ANSWER Separate ownership and management of assets Which of the following equations represent the residual claim on a firm's assets? Assets - Liabilities Equity + Liabilities Assets - Liabilities - Equity Assets - Equity - ANSWER Assets - Liabilities The 'bottom line' in a profit and loss statement is: Net income (or earnings) Revenues Expenses Gross income - ANSWER Net income (or earnings) Which of the following is NOT included in the operating profit figure? Selling, general and administrative expenses Cost of goods sold Net sales Interest expense - ANSWER Interest expense Which of the following is equal to gross profit? EBIT - interest Operating profit + other income EBT - tax Net sales - cost of goods sold - ANSWER Net sales - cost of goods sold Net income equals: EBIT - interest

Operating income EBITDA EBT- tax - ANSWER EBT- tax Operating margin equals: Gross profit/Owners equity Operating income/Sales Gross profit/Assets Operating income/Cost of goods sold - ANSWER Operating income/Sales ROA equals: Gross profit/assets Net income/[(average) BV of equity] Net income/[(average) BV of assets] Gross profit/Owners equity - ANSWER Net income/[(average) BV of assets] Earnings per share equals: Gross profit/Assets Net income/Liabilities Net income/Average outstanding number of shares Gross profit/Owners equity - ANSWER Net income/Average outstanding number of shares What are the most often quoted and related financial ratios? Earnings per share and Price/Earnings Price/Earnings and gross margin Operating margin and gross margin Earnings per share and Price/Sales - ANSWER Earnings per share and Price/Earnings Debt-equity ratio equals:

Total equity/Total debt Total debt/Total assets Total assets/Total debt Total debt/Total equity - ANSWER Total debt/Total equity The current ratio equals: Total debt/Total equity Gross profit/Sales Current assets/Current liabilities Equity/ Current liabilities Total - ANSWER Current assets/Current liabilities The quick ratio will always be equal to, or larger than, the cash ratio. False True - ANSWER True Debt is generally considered a cheaper form of funding than equity funding? False True - ANSWER True What do efficiency "activity" ratios capture? The firms ability to manage current assets and current liabilities The firms ability to meet short term liabilities The firms ability to effectively use its assets in generating revenue Stock price movements - ANSWER The firms ability to effectively use its assets in generating revenue Total asset turnover equals: Current assets/Current liabilities

Sales/(average)Total assets Gross profit/Sales Total debt/Total equity - ANSWER Sales/(average)Total assets Operating margin measures the: Operating income Firms ability to sell a product for more than the direct and indirect costs of production Gross sales of the firm Firms ability to sell a product - ANSWER Firms ability to sell a product for more than the direct and indirect costs of production Why do analysts often prefer to use ROA rather than ROE in their analysis? ROA includes assets ROE includes equity Assets are more important than equity It is not as sensitive to the firm's choice of leverage - ANSWER It is not as sensitive to the firm's choice of leverage When would Price/Earnings ratio equal earnings per share? Always Never Only when net income equals market capitalization Only when share price equals EPS - ANSWER Only when net income equals market capitalization A 'fast-track' analyst price/earnings forecast depends crucially on: The stability of the Price/Earnings ratio Whether the company just listed or not Where the company operates The analyst who forecasted the Price/Earnings ratio - ANSWER The stability of the Price/Earnings ratio

Debt investors generally want the firm to: invest only in risk-free assets invest in projects that are not too risky relative to the average risk of projects in place Avoid risky projects Invest in very risky projects - ANSWER Avoid risky projects If the interest coverage ratio increases from one year to the next, the interest expense for the firm must have fallen. False True - ANSWER False What do we divide cost of goods sold by in order to estimate a firm's inventory turnover? Sales (average) Inventory Cost of goods sold 365 - ANSWER (average) Inventory We divide accounts receivable turnover by what in order to estimate a firm's average collection period (in days)? 365 Accounts receivable turnover Sales (average) Accounts receivable - ANSWER 365 The quick ratio equals: Sales/Total assets Current assets/Current liabilities

(Cash and near cash)/Current liabilities Gross profit/Sales - ANSWER (Cash and near cash)/Current liabilities What is a potential drawback of liquidity measures? They don't take into account cash generated by ongoing operations They don't take into account non-current assets They don't take into account non-current liabilities They only take into account cash transactions - ANSWER They don't take into account cash generated by ongoing operations When should market value be used to value and asset? Never When there is a competitor When market value data is available on financial markets When market value estimates are available at low cost and when they convey information about operating performance - ANSWER When market value estimates are available at low cost and when they convey information about operating performance Which asset/s cannot be easily valued using market value? Plant, equipment, inventory Investments in debt instruments Investments in options Investments in stocks - ANSWER Plant, equipment, inventory Market value is commonly referred to as the book value. True False - ANSWER False Plant, equipment and inventory are most commonly valued using market value (this is because it is considered a 'fair value').

True False - ANSWER False What accounting method do small businesses tend to use (sole proprietor or partnerships)? Historical cost accounting Acquisition cost accounting Accrual accounting Cash-basis accounting - ANSWER Cash-basis accounting A firm that is profitable can still be at risk of liquidity constraints and may go bankrupt. True False - ANSWER True Profit maximization: Is sometimes equal to wealth creation for shareholders Is not the focus of corporations Equals wealth creation for shareholders Is a subset of wealth creation for shareholders - ANSWER Is a subset of wealth creation for shareholders What do businesses focus on when evaluating various business propositions? Terminal value Cost of capital Discount rates Net present value of future cash flows - ANSWER Net present value of future cash flows Corporations in consideration of the interest of shareholders (who care about financial gain) should primarily focus on keeping costs low True False - ANSWER False

Which of the following would not be a way in which you could overcome the agency problem (Conflict of interest between management and shareholders)? Voting out directors Pay directors higher salaries Informal meetings with management Organizing an AGM - ANSWER Pay directors higher salaries How do accountants arrive at the book value for an asset? Accountants only use market value to value assets Accountants don't record assets at book value or market value Historical cost Historical cost, less accumulated depreciation - ANSWER Historical cost, less accumulated depreciation Market value is commonly referred to as the book value. True False - ANSWER False What is a disadvantage of accrual accounting? Requires monitoring cash flow separately Makes business more flexible Matches cash received to expenses made There are no disadvantages - ANSWER Requires monitoring cash flow separately Most well-known large firms use cash basis accounting instead of accrual accounting as it helps to keep track of their large and complex cash positions False True - ANSWER False

Which of the following is not a valid concern when dealing with accrual accounting as opposed to cash basis accounting? Accrual accounting is more complicated than cash accounting An in-depth accounting understanding is required for accrual accounting Payment terms for supplier invoices Business gets paid immediately for goods/services - ANSWER Payment terms for supplier invoices Wealth maximization focuses on: Cash flows Accruals Revenues Profit - ANSWER Cash flows What do businesses focus on when evaluating various business propositions? Cost of capital Discount rates Terminal value Net present value of future cash flows - ANSWER Net present value of future cash flows The current ratio formula is: Current assets/Current liabilities Equity/ Current liabilities Total debt/Total equity Gross profit/Sales - ANSWER Current assets/Current liabilities What is the key reason for managers to engage in earnings management? Smooth earnings over time to avoid volatility To increase the company's total assets

Smooth cash flow There is no key reason - ANSWER Smooth earnings over time to avoid volatility Which of the following doesn't represent an earnings management method? Acceleration of sales Alterations in shipment schedules Minimizing cash expenses Delaying research and development (R&D) expenditures - ANSWER Minimizing cash expenses