Stock and Company

Powerful Essays
Week 7 Chapter 6: Investors in the Share Market True/False QUESTIONS 1. Investing in shares of publicly listed corporations should, on average, over time provide a higher return than investing in fixed-interest securities. a. True b. False 2. Investments through a stock exchange are limited to ordinary shares issued by listed corporations. a. True b. False 3. Portfolio theory contends that a diversified share portfolio enables an investor to significantly reduce the portfolio’s exposure to systematic risk. a. True b. False 4. A share that has a beta of one is twice as risky as an average share listed on a stock market. a. True b. False 5. Shares that typically demonstrate a negative price correlation will usually move in the same direction if new economic information comes to the market. a. True b. False 6. With dividend imputation, a shareholder with a marginal tax rate that is lower than the company tax rate will pay no tax on a fully franked dividend received, and the excess credit can be applied against other assessable income. a. True b. False 7. A company’s liquidity, that is, its ability to meet its short-term financial obligations, may be measured using the current ratio and the liquid ratio. Of the two ratios, the latter is the more stringent measure. a. True b. False 8. It can be safely inferred that a company with a low current ratio is a riskier investment than a company with a high current ratio. a. True b. False

9. In comparing the profitability of different companies that have quite different financial structures, the use of the EBIT to total funds employed ratio would be more suitable than the EBIT to shareholders’ funds ratio.
MAF 702 Lecture 7 (Topic 7) MCQs and T/F Questions

Page 1

a. True b. False 10. Given that the banking sector consistently displays a higher debt-to-equity ratio than do other sectors of the market, it can be reasonably concluded that there is a greater level of risk associated with investments in this sector. a. True b.

You May Also Find These Documents Helpful

  • Good Essays

    Cango Financial

    • 1115 Words
    • 5 Pages

    The success of a business depends on its ability to remain profitable over the long term, while being able to pay all its financial obligations and earning above average returns for its shareholders. This is made possible if the business is able to maximize on available opportunities and very efficiently and effectively use the resources it has to create maximum value for all involved stakeholders. One way the performance of a company can be measured on critical areas such as profitability, its ability to stay solvent, the amount of debt exposure and the effectiveness in resource utilization, is performing financial analysis where a set of ratios provides a snapshot of company performance and future prospects. Financial analysis is also a very useful technique that forms a basis for making key decisions about company operations. In addition to internal company members, these ratios are used by potential investors and shareholders to make investment decisions about the company.…

    • 1115 Words
    • 5 Pages
    Good Essays
  • Satisfactory Essays

    Common Stock

    • 436 Words
    • 2 Pages

    Question 1.1. (TCO D) Which of the following statements concerning common stock and the investment banking process is NOT CORRECT?…

    • 436 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Leslie Fay Case

    • 2643 Words
    • 11 Pages

    The use of financial ratios assists the auditor in analyzing any unusual deviations from the expected results, (Gupta, 2004). The financial ratios are then compared with the entity 's ratios for prior periods as well as with ratios for other businesses in the same industry. A comparison with the industry ratios would have warned BDO of some irregularities in Leslie Fay 's financial statements. BDO Seidman should have been interested some important ratios that would help in determining the accuracy of the financial statements that had been prepared by Polishan and his staff. The important ratios include the liquidity ratios, the profitability ratios and the operating ratios, the leveraging ratios and the solvency ratios. Of higher importance should have been the profitability apart from the gross profitability ratio.…

    • 2643 Words
    • 11 Pages
    Good Essays
  • Satisfactory Essays

    Owner's Equity

    • 431 Words
    • 2 Pages

    Investors often use the dividend per share as a measure to determine the real value of a share. Proponents of this school of thought argue that the earning per share is of no real value to anyone but those who can determine the policies of a company. The income of an investor is the dividend that he receives. It is therefore submitted that the value of a share should be a multiple of the dividend paid on that share. (Petroff)…

    • 431 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Stock and Industry

    • 2546 Words
    • 11 Pages

    F 6. Industry life cycles measure the growth path of an industry through five stages.…

    • 2546 Words
    • 11 Pages
    Good Essays
  • Good Essays

    DQ 2

    • 353 Words
    • 1 Page

    There are a number of comparative ratios that are available, which include Dun and Bradstreet, Value Line, and the Annual Statement Studies published by Risk Management Associates. When a person is out looking at these sources, he or she has to understand that each source has a different emphasis. For example, Dun and Bradstreet looks at proprietorships, and sells its information to lenders and banks. Thus, D&B has more of a focus on current liabilities and assets, and not market ratios. Moreover, same size companies, in the same industry can use different accounting methods. For example, one organization may use a First In First Out approach, another may use First In Last Out approach. The difference of these approaches could alter several aspects of an organization’s financial data.…

    • 353 Words
    • 1 Page
    Good Essays
  • Satisfactory Essays

    Financial management is important for any successful business. Good financial management requires proper planning and keeping up with the conditions of the business’ finances situation through ratio analysis and other performance measures. These analysis are done to ultimately keep up with the financial trends in a company and locate their strengths and weaknesses so they can be altered accordingly. In this paper we are going to perform a ratio analysis on Microsoft Corporation paying close attention to the organizations profitability, solvency, and efficiency ratios. We then will compare those ratios to the average ratios within their industry.…

    • 825 Words
    • 6 Pages
    Satisfactory Essays
  • Better Essays

    The first method we will review is the accounting method. Through this accounting approach we will analyze specific ratios and their possible impact on the company's performance. The specific ratios we will review include the return on total assets, return on equity, gross profit margin, earnings per share, price earnings ratio, debt to assets, debt to equity, accounts receivable turnover, total asset turnover, fixed asset turnover, and average collection period. I will explain each ratio in greater detail, and why I have included it in this analysis, when I give the results of each specific ratio calculation.…

    • 1572 Words
    • 7 Pages
    Better Essays
  • Best Essays

    Business Finance

    • 2037 Words
    • 9 Pages

    Malikova1, O., and Brabec, Z., 2011. The influence of a different accounting system on informative value of selected financial ratios. [Online]. Available at: <URL:http://web.ebscohost.com> [Accessed 9th March 2013].…

    • 2037 Words
    • 9 Pages
    Best Essays
  • Good Essays

    Reebok Vs Caesar

    • 516 Words
    • 3 Pages

    1. Compute financial ratios using the guidelines provided below. Use the component ratios of return on equity to explain the reasons for the difference in the profitability across the two firms. In other words, is profit margin, asset turnover or/and financial leverage responsible for the difference in profitability? Comment on the riskiness of the two companies based on the financial ratios. I would like you to compute the ratios for 1988, 1989 and 1990. Data to compute the ratios for 1990 are in the current financial statements. But to compute ratios for 1988 and 1989, you may have to get some data from notes and supplementary disclosures (all included in the case). I provide guidelines for this purpose below.…

    • 516 Words
    • 3 Pages
    Good Essays
  • Good Essays

    By analyzing the financial ratios for company A and B, we can tell that company A has a better state of financial health based upon their beta, current ratio, inventory turnover and total debt/total ratio. The highest net profit margin occurs in heath products. By analyzing the intangibles section,…

    • 917 Words
    • 4 Pages
    Good Essays
  • Satisfactory Essays

    Stock and Company

    • 1434 Words
    • 11 Pages

    Which classification system is available with EQS as a criteria for your screen of equities?…

    • 1434 Words
    • 11 Pages
    Satisfactory Essays
  • Powerful Essays

    There are three forms of the efficient market hypothesis: (i) the weak-form; (ii) the semi strong-from; and (iii) the strong-form (Fama, 1970, 1991). The weak-form suggests that asset prices already reflect all stock market information meaning that stock market information cannot be used to make abnormal returns on a risk-adjusted based. The semi strong-from suggests that in addition to stock market information, stock prices also reflect all publicly available information such as price-to-book ratios, dividend yield, price-to-cash flow and price-to-earnings ratios. The semi strong-form means that abnormal returns cannot be made by trading on stock market data and any other information that is disclosed to the general public about stocks (Reilly and Brown, 2009). Finally, the strong-form states that security prices reflect both public and private information (Reilly and Brown, 2009).…

    • 2070 Words
    • 9 Pages
    Powerful Essays
  • Good Essays

    Six Flags Research Paper

    • 965 Words
    • 4 Pages

    The inputs for these calculations can be found in a firm's published financial statements. An understanding of the accounting practices is necessary for each firm being compared. When comparing two companies, adjustments might need to be made so that the accounting information is represented in a similar way. (Bodie, 1998)…

    • 965 Words
    • 4 Pages
    Good Essays
  • Good Essays

    ii) Accounting Profitability: Different financial ratios that measure a firm’s performance relative to other firms in the industry…

    • 1649 Words
    • 7 Pages
    Good Essays