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Basic Question 0 of 8
An overstatement of ending inventory would result in an ______.
B. understatement of quick ratio
C. understatement of current ratio
D. overstatement of profit margin
A. overstatement of total asset turnover
B. understatement of quick ratio
C. understatement of current ratio
D. overstatement of profit margin
User Contributed Comments 5
| User | Comment |
|---|---|
| rainatt | ASSET TURNOVER=NET SALES/AVERAGE TOTAL NET ASSET |
| sarath | quick ratio = cash+marketable securities + Receivables / CL No inventory component so no effect on the quick ratio ... |
| guna | (OB+Purchases) - COGS = EI. If EI overstated, (OB+purchases) remains constant, only COGS should have been reduced to get an inflated EI. In the Income Statement COGS is like an expense, understating an expense would overstate Income |
| johntan1979 | :( I got this wrong because I confused profit margin with gross margin and thought net income should be NET profit margin, not just profit margin. |
| Inaganti6 | Wow i got something right and Johntan1979 didn't. Maybe I do stand a chance in this exam ! |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
calculate and interpret alternative price multiples and dividend yield;
calculate and interpret underlying earnings, explain methods of normalizing earnings per share (EPS), and calculate normalized EPS;
explain and justify the use of earnings yield (E/P);
describe fundamental factors that influence alternative price multiples and dividend yield;
calculate and interpret the justified price-to-earnings ratio (P/E), price-to-book ratio (P/B), and price-to-sales ratio (P/S) for a stock, based on forecasted fundamentals;
calculate and interpret a predicted P/E, given a cross-sectional regression on fundamentals, and explain limitations to the cross-sectional regression methodology;
evaluate a stock by the method of comparables and explain the importance of fundamentals in using the method of comparables;
calculate and interpret the P/E-to-growth ratio (PEG) and explain its use in relative valuation;
calculate and explain the use of price multiples in determining terminal value in a multistage discounted cash flow (DCF) model;
explain alternative definitions of cash flow used in price and enterprise value (EV) multiples and describe limitations of each definition;
calculate and interpret EV multiples and evaluate the use of EV/EBITDA;
CFA® 2025 Level II Curriculum, Volume 4, Module 23.