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Mid-Term Exam Part 3 Study Guide for Spring 2011 Financial Concepts Review - Prof. Barbara, Study notes of Humanities

Northern Illinois University (NIU)Humanities
Prof. Barbara Fox

This is a study guide for the mid-term exam part 3 for a spring 2011 financial concepts course, which includes a review of financial ratios, income statement analysis, and foreign currency issues. It includes a set of multiple-choice questions with answers, and requires the use of a provided spreadsheet and financial statements for reference.

Typology: Study notes

2010/2011

Uploaded on 05/10/2011

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Mid-Term Exam Part 3 Study Guide
Spring 2011
This study guide is intended to help you review various financial concepts.
Valuation Analysis
Review your notes, lecture slides, Key Learnings and spreadsheet for the Diamond Foods’
Valuation Analysis. Understand the logic of the spreadsheet and application of theory. A copy
of the Diamond Foods’ Valuation Analysis spreadsheet will be provided for you with the exam.
Ratio and Financial Statement Interpretation
Review the slides and the Quick Reference Guide on page 99-102.
To use this study guide you will need the following information:
1. A corrected copy of the Financial Performance and Ratio Analysis spreadsheet from your
Case Analysis Homework #2 team assignment. You may send the excel file to each
person on the team or post it to your group pages.
2. The Diamond Foods’ Financial Statements provided in the Case Analysis homework.
Instructions:
1. Respond to the questions below by selecting the best answer.
2. Refer to the spreadsheet calculations (HW#2) and/or the Diamond Foods’ Financial
Statements, your notes, and quick reference guide as needed.
3. Answers are provided at the end of the document.
1. Trends for Diamond Foods’ inventory ratios indicate:
a) Days sales in inventory are improving as compared to the base year of 2007.
b) Inventory turns and days sales in inventory have deteriorated as compared to the base
year of 2007.
c) Diamond Foods’ inventory turns are better than its industry indicating the company is
more efficient than its competitors.
d) Both b and c above.
e) None of the above statements characterizes Diamond Foods’ inventory situation.
2. Which statement(s) best describe Diamond Foods’ profitability situation?
a) Its profitability should be increasing due to the changes in its inventory turns.
b) Its net profit margin is lower than the industry.
c) Its return on equity has increased over time.
d) Its return on assets increased from 2007 to 2009 indicating improved management of
assets.
e) All of the above describe Diamond Foods’ profitability situation.
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Download Mid-Term Exam Part 3 Study Guide for Spring 2011 Financial Concepts Review - Prof. Barbara and more Study notes Humanities in PDF only on Docsity!

Mid-Term Exam Part 3 Study Guide Spring 2011 This study guide is intended to help you review various financial concepts. Valuation Analysis Review your notes, lecture slides, Key Learnings and spreadsheet for the Diamond Foods’ Valuation Analysis. Understand the logic of the spreadsheet and application of theory. A copy of the Diamond Foods’ Valuation Analysis spreadsheet will be provided for you with the exam. Ratio and Financial Statement Interpretation Review the slides and the Quick Reference Guide on page 99-102. To use this study guide you will need the following information:

  1. A corrected copy of the Financial Performance and Ratio Analysis spreadsheet from your Case Analysis Homework #2 team assignment. You may send the excel file to each person on the team or post it to your group pages.
  2. The Diamond Foods’ Financial Statements provided in the Case Analysis homework. Instructions: 1. Respond to the questions below by selecting the best answer. 2. Refer to the spreadsheet calculations (HW#2) and/or the Diamond Foods’ Financial Statements, your notes, and quick reference guide as needed. 3. Answers are provided at the end of the document.
  3. Trends for Diamond Foods’ inventory ratios indicate: a) Days sales in inventory are improving as compared to the base year of 2007. b) Inventory turns and days sales in inventory have deteriorated as compared to the base year of 2007. c) Diamond Foods’ inventory turns are better than its industry indicating the company is more efficient than its competitors. d) Both b and c above. e) None of the above statements characterizes Diamond Foods’ inventory situation.
  4. Which statement(s) best describe Diamond Foods’ profitability situation? a) Its profitability should be increasing due to the changes in its inventory turns. b) Its net profit margin is lower than the industry. c) Its return on equity has increased over time. d) Its return on assets increased from 2007 to 2009 indicating improved management of assets. e) All of the above describe Diamond Foods’ profitability situation.
  1. Which statement(s) best describe Diamond Food’s interest coverage situation? a) Diamond Foods’ ability to pay interest on debt is lower in 2009 than in 2007. b) Diamond Foods’ Interest Cash Coverage is a better indicator of the ability to pay than Interest Coverage Earned because depreciation (a non-cash item) is added back to Operating Income to determine Interest Cash Coverage. c) Diamond Food’s Interest Coverage declined in 2009 primarily due to higher interest expense. d) Both b and c above. e) a, b and c above are true with regard to Diamond Foods’ interest coverage situation.
  2. Which statement(s) best describe Diamond Foods’ income statement situation? a) Diamond Foods’ revenue increased in 2009 from 2007 due to revenues from the acquisition of Pop Secret and expansion of the snack aisle product lines. b) Diamond Foods’ gross profit increased in 2009 from 2007 due to the reduction of cost of sales. c) Diamond Foods’ Interest Expense declined in 2009 compared to 2008. d) Both a and b above. e) a, b and c are true with regard to Diamond Foods’ income statement situation.
  3. Which statement(s) are true with regard to Diamond Foods’ average collection period/accounts receivable situation? a) Diamond Foods’ accounts receivables decreased between 2007 and 2009. b) Diamond Foods’ average collection period in 2009 is high for a company with 30 day payment terms. c) Diamond Foods’ average collection period is stable which means the company is getting worse at collecting accounts receivable. d) Both b and c above. e) a, b, and c are true with regard to Diamond Foods’ average collection period/accounts receivable situation.
  4. Diamond Foods’ liquidity situation is: a) Dramatically improving over time. b) Getting worse over time. c) About the same over time. d) There is not enough information to determine the answer. e) None of the above statements characterized Diamond Foods’ liquidity situation.
  5. Diamond Foods’ Return on Assets (ROA) for 2009 is: a) 6.0% b) 13.7% c) 4.2% d) 23.7% e) 7.4% Note: Review the spreadsheet for more ratios.
  1. If $1USD = $1.15CAD, how many USD can be bought with $100 CAD? a) $1 USD. b) $1.15 CAD. c) $.87 USD d) $870 USD e) $87 USD.
  2. Cash managers at US companies who are concerned about fluctuations in the Canadian (CAD) dollar can effectively manage this risk by: a) Going on vacation. b) Entering into futures contract (standardized), which guarantees a specific exchange rate on future date. c) Entering into a forward contract (customized), which guarantees a specific exchange rate on a future date. d) huh? e) Both b and c are correct.

Answers:

  1. a
  2. e
  3. e
  4. d
  5. a
  6. b
  7. a
  8. e
  9. b
  10. e
  11. e
  12. c
  13. e Step 1 = $1.00 USD/$1.15 CAD = $0.87USD. Step 2 = $0.87 USD X 100 CAD = $87USD
  14. e