Positive trends in both gross margin and operating margin


1) When reviewing the Income Statement, the "top line" refers to:

a) Total Assets

b) Total Liabilities and Equities

c) Market Size

d) Market Share

e) Total Sales or Revenue

2) When looking at the Income Statement, the "gross profit" refers to:

a) Retained Earnings

b) Revenue less costs and expenses, but not interest and taxes

c) Revenue less costs and expenses, including interest and taxes

d) Revenue less costs of goods sold, but not expenses

e) Selling price after promotions less discounts

3) Key issues when looking at trends in the revenue and gross profit on the Income Statement include:

a) Sales growth

b) Market share

c) Pricing strength

d) Product or service costs

e) All of the above

4) The Operating Profit on the Income Statement is:

a) Revenue less costs and expenses, but not interest and taxes

b) Revenue less costs and expenses, including interest and taxes

c) Earnings

d) Revenue less costs of goods sold, but not expenses

e) Net Income

5) When looking at Operating Profit the analyst is not interested in:

a) Trends in Operating Margin

b) Trends in Expense to Revenue (E/R) ratios

c) Trends in Gross Margin

d) Revenue Growth

e) The analyst must be concerned with all of the above

6 )The Free Cash Flow (FCF) generated from business operations is:

a) Earnings

b) Operating Profit less taxes

c) The amount given to shareholders as dividends

d) Operating Profit less taxes and interest

e) Operating Profit less taxes, interest & any investments needed to continue operations

7) The Balance Sheet can best be described as:

a) A view of a firm's performance over a period of time

b) A snapshot of the business at a point in time

c) A description of the cash available for discretionary use

d) A summary of a firm's assets

e) A summary of a firm's liabilities

8) If analysis implies that Gross Margin is trending downward, then the analyst should conclude that:

a) Revenue growth is weakening

b) Pricing might be under pressure

c) Cost of Goods Sold may be trending upward

d) A and B

e) B and C

9) If the trend in Gross Margin is positive, but trend in Operating Margin is declining, the analyst should conclude:

a) Cost of Goods Sold as a percent of sales may be trending upward

b) Sales expense may be increasing as a percent of revenue

c) General and Administrative (G&A) expense may be increasing as a percent of revenue

d) B and C

e) All of the above

10) Positive trends in both Gross Margin and Operating Margin, but a weakening of Free Cash Flow trends might signal:

a) That the firm has made some major capital investments

b) That inventory levels might be expanding faster than sales

c) Receivables collections are lagging

d) Suppliers are not being paid

e) B and C above

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Operation Management: Positive trends in both gross margin and operating margin
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