Some fundamental multiple-choice questions derived from this chapter:
1. For an industrial company, what does a high 'ratio of gross to market value of common stock' suggest?
A) The company is potentially undervalued
B) The company is likely overvalued
C) The company has a high debt ratio
D) The company has a low operational efficiency
2. Why would an analyst consider 'the ratio of current assets to current liabilities' in their comparative analysis?
A) To evaluate long-term investment potential
B) To assess the company's short-term financial health
C) To determine the efficiency of capital utilization
D) To analyze the company's dividend distribution potential
3. Question: What is the primary purpose of conducting a comparative analysis of companies in the same field according to the excerpt?
A) To evaluate the management effectiveness of individual companies.
B) To assess the market position of a company relative to its competitors.
C) To identify instances of undervaluation or overvaluation of companies.
D) To forecast future industry trends based on past performances.
4. Question: Which of the following is NOT one of the items suggested for inclusion in a comparative analysis of railroad companies?
A) Ratio of effective debt to total capitalization.
B) Gross revenues.
C) Market share comparison.
D) Ratio of gross to aggregate market value of common stock.
5. Question: In the context of the chapter, what does the term "effective debt" refer to?
A) Total outstanding long-term debts of a company.
B) Debt adjusted for current market conditions.
C) Fixed charges multiplied by a certain factor.
D) Sum of short-term and long-term debts.
6. Question: What is the suggested approach to dealing with earnings figures that appear misleading or incomplete?
A) Adjust them based on industry averages.
B) Ignore them in favor of more reliable metrics.
C) Correct them for known distortions or omissions.
D) Base conclusions solely on other financial ratios.
7. Question: The excerpt suggests caution when interpreting comparative analysis in which type of industry groups?
A) Homogeneous groups.
B) Heterogeneous groups.
C) Newly emerging industries.
D) Highly regulated industries.
Answers: ABCCC CB