Exercise
Answer the following questions.
1. In fundamental stock analysis, the _____ is a snapshot of a company’s financial condition at a point in time, whereas the _____ shows the results of the company’s earnings and expenses over a particular period of time.
I. Income statement
II. Pro forma
III. Quick ratio
IV. Balance sheet
A. I and IV
B. II and IV
C. IV and I
D. III and II
2. In a typical income statement, which of the following items is not deducted from gross revenues to arrive at operating income?
A. Taxes
B. Selling, general, and administrative expenses
C. Depreciation and amortization
D. Cost of goods sold
3. An analyst using fundamental analysis would typically be least interested in which of the following?
A. EPS
B. Cash flow
C. Performance of the S&P 500
D. P/E ratio
4. All of the following items are reported to the IRS on a corporation’s tax return and also found on the company’s income statement except:
A. Sales
B. Cost of goods sold
C. Pre-tax income
D. Owner’s equity
5. What is the earnings per share of ABC Corporation, which reported before tax and interest earnings of $13,000,000; net income of $10,000,000; preferred dividends to be paid of $1,000,000; 5,000,000 issued shares of stock; and 3,000,000 outstanding shares of stock?
A. $10
B. $4
C. $3
D. $2
Answers
1. C. Income statements are always stated for a time period, whereas balance sheets are stated as of a particular date.
2. A. Taxes are the last item deducted, comprising the difference between pre-tax incom