Multiple Choice Questions
1. Which of the following are not part of common equity?
a. Common stock
b. Treasury stock
c. Retained earnings
d. Preferred stock
2. Dupont analysis recognizes that return on equity can be broken down into three important aspects of return, which are:
a. Net profit margin, asset turnover, and leverage
b. Net profit margin, asset turnover, and average assets
c. Sales, income, and leverage
d. Sales, income, and equity
3. If a company has a higher net profit margin than most of its competitors, this means that:
a. The company is more efficient with its assets
b. The company has more loyal customers
c. The company has a lower proportion of debt financing
d. The company has a higher proportion of each sales dollar that is profit
4. Which of the following ratios is decomposed using the Dupont framework?
a. Return on equity
b. Asset turnover
c. Assets-to-equity ratio
d. Return on sales
5. Which of the following is not included in the Dupont framework?
a. A measure of profitability
b. A measure of efficiency
c. A measure of market share
d. A measure of leverage
6. When Dupont analysis reveals that a company has much higher than average asset turnover and much lower than average profit margin, what can be concluded about the company’s strategy?
a. It is a product differentiator.
b. It is a low-cost provider.
c. It has no strategy.
d. It needs to concentrate on improving its profit margins.
7. Which of the following questions would be appropriate for an analyst to investigate regarding a company’s liabilities?
a. Are all liabilities reported?
b. Are the liabilities properly classified?
c. Are estimated liabilities large enough?
d. All of these