Valuation Quiz

What is the primary purpose of reorganizing financial statements?

• To comply with tax regulations

• To separate operating, nonoperating and financing items

• To simplify the balance sheet

• To increase reported profits

NOPLAT differs from net income because it excludes:

• Revenue

• Interest expense and nonoperating income

• Operating taxes

• Depreciation

Invested capital is calculated as:

• Total assets - nonoperating assets - operating liabilities

• Debt + Equity

• Net income / ROIC

• Current assets - current liabilities

Why is ROIC a better performance metric than ROE?

• It includes financial leverage

• It isolates operating performance from capital structure

• It accounts for dividends

• It uses book values

Free cash flow (FCF) is available to:

• Equity holders only

• Debt holders only

• All investors (debt and equity)

• Government agencies

Which component is NOT included in invested capital?

• Accounts receivable

• Property, plant and equipment

• Excess cash

• Accounts payable

The formula for ROIC is:

• Net Income / Equity

• EBIT / Total Assets

• NOPLAT / Invested Capital

• FCF / Revenue

When analyzing days of working capital, which formula is correct?

• (Inventory + AR - AP) / (Revenue/365)

• (Current Assets - Current Liabilities) / Revenue

• AR / COGS × 365

• AP / Revenue × 365

Which of these is considered a nonoperating asset?

• Accounts receivable

• Excess cash

• Inventory

• Property, plant and equipment

What does the economic profit measure?

• ROIC minus cost of capital

• Net income minus dividends

• EBIT minus interest

• Revenue minus operating expenses