IFA IFA Financial Analysis & Decision Making 3

Question 1

What does the return on capital employed (ROCE) ratio measure?

Accepted Answer

The efficiency with which a company generates profit from its total capital

Answer

The dividend yield paid to shareholders

Answer

The ratio of debt to equity

Answer

The speed at which receivables are collected

Question 2

Which analysis technique compares a company's ratios to industry benchmarks?

Accepted Answer

Benchmarking (cross-sectional analysis)

Answer

Trend analysis

Answer

Sensitivity analysis

Answer

Regression analysis

Question 3

What is a break-even analysis used for in decision making?

Accepted Answer

Determining the sales level at which total revenue equals total costs

Answer

Calculating the maximum profit possible

Answer

Forecasting future dividends

Answer

Measuring employee productivity

Question 4

Sensitivity analysis in financial modeling is used to:

Accepted Answer

Test how changes in key assumptions affect the outcome of a decision

Answer

Ensure compliance with accounting standards

Answer

Calculate the exact future cash flows

Answer

Audit the financial statements

Question 5

What is working capital and why is it important?

Accepted Answer

Current assets minus current liabilities; it measures short-term operational liquidity

Answer

Long-term investments minus long-term debt

Answer

Fixed assets used in daily operations

Answer

The total capital raised through equity issuance

Question 6

Which profitability ratio measures the return earned on shareholders' investment?

Accepted Answer

Return on equity (ROE)

Answer

Return on assets (ROA)

Answer

Gross profit margin

Answer

Operating profit margin