Income Statement quiz level 2 Financial Statements Quiz Share Income Statement quiz level 1 Income Statement quiz level 2 Income Statement level 2 Pass Score 70% The questions change when you repeat the exam 1 / 30 Earnings per share (EPS) equals : Revenue ÷ Shares Net income ÷ Assets Net income ÷ Shares outstanding Gross profit ÷ Shares 2 / 30 Contribution margin ratio equals: Contribution margin ÷ Revenue Gross profit ÷ Assets Net income ÷ Revenue Fixed costs ÷ Revenue Shows how much revenue covers fixed costs. 3 / 30 Extraordinary items must be : Predictable Unusual and infrequent Operating Frequent 4 / 30 A declining gross margin may indicate : Higher sales prices Lower production costs Rising COGS Lower operating expenses Production costs may be increasing. 5 / 30 A steady increase in net income suggests : Poor management Higher liabilities Lower revenue Improving performance Assuming earnings quality is good. 6 / 30 Which statement is most useful for profitability analysis ? Income statement Notes only Cash flow statement Balance sheet It focuses on revenues and expenses. 7 / 30 Diluted EPS considers : Potential shares Assets Preferred stock only Only current shares Includes options and convertible securities. 8 / 30 A common-size income statement expresses items as a % of : Net income Equity Revenue Total assets 9 / 30 Pro-forma income statements are used to : Show expected future results Calculate taxes Hide losses Report past performance They project financial performance. 10 / 30 Income statement manipulation often involves : Overstating expenses Timing of revenue recognition Reducing equity Increasing depreciation 11 / 30 Which income statement item affects EPS directly ? Net income Expenses Assets Revenue EPS is based on net income. 12 / 30 EBITDA excludes : Operating income Depreciation and amortization Gross profit Revenue 13 / 30 Vertical analysis helps compare : Different companies of different sizes One company over time Cash flows Assets and liabilities 14 / 30 Income smoothing refers to : Increasing cash flow Stabilizing reported income over time Accurate reporting Eliminating expenses Sometimes done to appear less risky. 15 / 30 Gross profit increases when : COGS decreases Revenue decreases Expenses increase COGS increases 16 / 30 Break-even point is when : Cash flow is positive Net income is maximized Revenue equals expenses Revenue exceeds expenses Profit is zero at break-even. 17 / 30 Which income is considered low quality ? Gain on asset sale Sales revenue Service income Subscription revenue Gains from asset sales are non-recurring. 18 / 30 High operating leverage means : Low sales High fixed costs Low risk High variable costs 19 / 30 Discontinued operations are reported : In equity In assets Before operating income After operating income 20 / 30 Quality of earnings refers to : Sustainability of income Cash balance Size of net income Gross profit High-quality earnings are repeatable and from core operations. 21 / 30 Return on sales equals : Net income ÷ Equity Gross profit ÷ Assets Revenue ÷ Assets Net income ÷ Revenue Another name for net profit margin. 22 / 30 Which improves net income without improving operations ? Increasing sales Reducing COGS Selling land at a gain Improving efficiency It’s non-operating and not sustainable. 23 / 30 A company with high fixed costs will have : High operating leverage No risk Low break-even point Low operating leverage Fixed costs increase sensitivity to sales changes. Operating costs reduce operating profit.24 / 30 Higher operating expenses will : Increase gross profit Increase assets Increase net income Decrease operating income 25 / 30 A common-size income statement shows : Assets and liabilities Dollar values only Percentages only Cash flows Each item is a percentage of revenue. 26 / 30 The income statement helps investors mainly to : Assess profitability Calculate dividends directly Measure liquidity Determine asset values Profitability drives investment decisions. 27 / 30 Which ratio uses income statement data only ? Gross margin Current ratio Return on assets Debt-to-equity It uses revenue and COGS. 28 / 30 Horizontal analysis focuses on : Ratios Trends over time Percentages Industry averages 29 / 30 Operating margin equals : Net income ÷ Revenue EBIT ÷ Assets Operating income ÷ Revenue Gross profit ÷ Revenue It shows operating efficiency. 30 / 30 Which margin best reflects overall profitability ? Operating margin Net profit margin Gross margin Contribution margin It includes all expenses. Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback Income Statement quiz level 2
