Free CFA-Level-I Exam Braindumps (page: 466)

Page 466 of 991

To examine the trends over time within a single firm or compare firms of different sizes, you should use:

  1. balance-sheet analysis.
  2. common industry analysis.
  3. common-size statements.
  4. cash flow analysis.

Answer(s): C

Explanation:

Common size statements normalize the financial data to allow easier comparison of different-size firms.



Stock dividends have the greatest impact on which section of the balance sheet?

  1. total assets
  2. total stockholders' equity
  3. total assets and total stockholders' equity
  4. retained earnings
  5. the components of stockholders' equity

Answer(s): E

Explanation:

The effect of stock dividends is recorded by transferring part of the retained earnings to the contributed capital accounts. Because of the increase in contributed, it is often described as capitalizing retained earnings.



The following data are available for a firm for a given year:

Net Sales 21,896
Sales & marketing expenses 4,346
Administrative expenses 2,143
COGS 10,084

Depreciation 967
Interest expense 573
Tax rate 35%
Dividends paid 3,445
Preferred Dividends 897
Average total equity 37,432
Average common equity 26,782
Average total liabilities 18,583

In the above example, the firm's net profit margin equals ________.

  1. 0.23
  2. 0.17
  3. 0.20
  4. 0.11

Answer(s): D

Explanation:

Net Profit Margin = Net Income/Net Sales Net Income = Earnings after depreciation, interest expense and taxes
= (21,896 - 4,346 - 2,143 - 10,084 - 967 - 573)*(1 - 0.35) = 2,459.
Therefore, Net Profit Margin = 2,459/21,896 = 0.11.



Capital stock (common stock)

  1. is a higher risk investment vehicle for the buyer than would be the purchase of bonds or preferred stock.
  2. represents the residual ownership of a firm.
  3. none of these answers.
  4. is typically the only type of stock that maintains voting privileges.

Answer(s): B

Explanation:

Capital (common) stock is a class of stock that represents ownership interest in a firm. Common stockholders are typically the only shareholders that have voting privileges because they are the true owners of the firm.
Investors bear the greatest risk when purchasing common stock because common stockholders stand last in line when it comes to the payment of income, or assets in the event of liquidation. By like token, common stockholders reap the greatest rewards because all earnings of a firm in excess of all obligations belong to the common stockholders.



Page 466 of 991



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