Multiple Choice Questions
1. Which of the situations described below would mean the firm analyzed is caught in a ‘scissor effect’
(a) Its interest expense grows faster than its labor compensation expense
(b) Its cost of goods sold declines slower than its sales revenue
(c) Its sale revenue is growing faster than its personnel expenses
(d) Its depreciation expenses and remuneration expenses vary in opposite directions
2. Common-sizing an income statement generally means expressing each line item of the statement as a percentage of
(a) Gross sales
(b) Operating profit
(c) Net sales
(d) Net income before taxes
3. When an entity extends its geographical market to reach less dense customer bases and thus increases its sales volume, it is logical (assuming the mix of sales remains the same) that, in the short term at least
(a) The cost of selling, as a % of sales, will increase
(b) Cost of goods sold, as a % of sales revenue, will increase
(c) The total cost of production will decrease
(d) R&D expenses will be increased in absolute value
4. Founded in 1853 by a succession of acquisitions and divestitures, Compagnie Ge´ ne´ rale des Eaux became a huge diversified conglomerate. It renamed itself Vivendi in July 2000, Vivendi Universal in December 2000 and back to Vivendi in April 2006 (still its name as of 2012). Over which of the following periods would a trend analysis of its income statement make sense
(a) 1853–2012
(b) 2006–2012
(c) 2000–2006
(d) 2009–2012
(e) None of the suggested periods
5. In a common-size analysis of the income statement, the evolution over three years of which of the following elements is the most relevant for a forecast of the future income of a firm
(a) Net income before taxes as a percentage of net sales
(b) Interest expense as a percentage of total interest bearing liabilities
(c) Exceptional income as a percentage of net income after taxes
(d) Personnel remuneration cost as a percentage of net sales revenue
6. The term EBIT means
(a) Earning Before Investments and Transport expenses
(b) Earnings Before Investments and Taxes
(c) Earnings Borne In Transit
(d) Earnings Before Interest and Taxes
7. One element of the strategy of a firm is to decide how to share its value added between
(a) Customers, investors, investments (preparing the future) and taxes
(b) Employees, taxes (Government), bankers, depreciation and shareholders
(c) Customers, employees, bankers, shareholders and government (taxes)
(d) Shareholders and bankers (providers of long term funds), suppliers and investors
8. The lists offered below contain elements called ‘intermediate balances’ and some elements of income statements that are not called intermediate balances. Which list contains only so-called intermediate balances
(a) Production, value added, gross operating profit (EBITDA), unusual income and net profit
(b) Gross margin, value added, sales expenses, purchasing expenses, cost to serve the market and net income
(c) R&D expenses, cost of goods sold, value added, net income and net financial income
(d) EBIT, EBITDA, R&D expenses, net income, commercial margin, and cost of resources procured from third parties
9. If the income statement of a firm is structured by function, the calculation of value added can be carried out without any restatement
(a) True
(b) False
10. If the lease of an asset is considered to be a financial lease (i.e., is capitalized under IFRS rules), the rent paid (periodic lease payment) is considered as part of the ‘resources consumed from third parties’ in the calculation of the value added created by the firm
(a) True
(b) False