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Questions and Answers
What is the main underpinning of a company's operating leverage?
What does a higher level of operating leverage typically indicate?
Why do companies with high operating leverage have substantial upside profit potential after covering their fixed expenses?
How does a rapid reduction in revenues impact a company with high operating leverage?
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Why are extraordinary expenses reported separately from regular expenses on the income statement?
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Why does S&P include employee stock option grant expense in core earnings?
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Why does S&P exclude unrealized gains/losses from hedging activities from core earnings?
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Why does S&P exclude goodwill impairment charges from core earnings?
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What is S&P's rationale for including restructuring charges from ongoing operations in core earnings?
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Why does S&P exclude pension gains from core earnings?
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What does the quality of earnings refer to in the context of financial analysis?
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Which factor is NOT considered when assessing the dependability of net income in financial analysis?
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In income statement analysis, what does identifying the base earnings profile involve?
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How does conservatism in accounting practices affect a company's balance sheet and reported earnings?
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Why is it important to evaluate the comparability of expenses in financial analysis?
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What is the primary purpose of separating mixed costs into their fixed and variable components?
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Which of the following is NOT a common method used to separate mixed costs into fixed and variable components?
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Why are lenders generally unable to accurately distinguish between a company's fixed and variable expenses based solely on the financial statements?
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Which of the following is an example of a mixed cost provided in the passage?
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What does the net profit margin measure?
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Why is the pretax profit margin sometimes considered more valid than the net profit margin?
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What is the significance of the operating profit margin?
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What is the significance of the gross profit margin?
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What are some key questions to consider when interpreting trends in a customer's gross profit margin?
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Which of the following does S&P believe should be included in core earnings?
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Which of the following does S&P believe should be excluded from core earnings?
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Why does S&P believe that goodwill impairment charges should not be included in core earnings?
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Why does S&P exclude gains/losses from asset sales from core earnings?
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Which of the following does S&P believe should be excluded from core earnings?
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If a company's contribution margin percentage decreases, which of the following is true regarding its break-even point?
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Which of the following ratios indicates the number of times a company's operating earnings cover its interest expense?
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If a company's fixed charge coverage ratio is less than 1, what does it imply?
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If a company's operating leverage percentage increases, what can be inferred about its cost structure?
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If a company's pricing strategy results in a significant increase in the cost of goods sold, which of the following is a potential consequence?
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If a company's dividend payout ratio exceeds 1.0x, what does it suggest?
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If a company's management demonstrates the ability to strategically respond to market shifts that permanently alter the potential for gross profit, what can be inferred about the company's creditworthiness?
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Which of the following steps should be taken when interpreting asset turnover ratios?
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If a company experiences a rapid reduction in revenues while maintaining a high operating leverage percentage, what is the likely impact on its profitability?
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What is the primary limitation of using turnover ratios to evaluate a company's financial efficiency?
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What is the formula for the Debt to Worth ratio in financial analysis?
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In financial analysis, what does the term 'Unfunded PBO' represent?
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How is the Operating Profit Leverage (OP Leverage) calculated in financial analysis?
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What is the purpose of the 'Minimum Liability' concept in financial reporting?
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How can a 1% increase in the discount rate affect the Projected Benefit Obligations (PBO) according to the text?
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What does the current ratio measure?
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What is the purpose of the quick ratio?
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What does the inventory reliance percentage indicate?
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What is the significance of net working capital?
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What is the purpose of capitalizing leases according to S&P?
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