🧩 Chapter 6: Company Analysis — 20 Exam-Level MCQs
This chapter is critical in NISM RA, so questions are a bit deeper — covering financial statements, business model evaluation, competitive advantage, ratios, and management analysis.
Q1. The three key financial statements used for company analysis are:
A. P&L, Balance Sheet, Cash Flow Statement
B. Trial Balance, Ledger, Cash Book
C. P&L, Audit Report, Notes to Accounts
D. Cash Flow, Bank Reconciliation, Ledger
Answer: A
✔ These three reflect profitability, financial position & liquidity.
Q2. Operating profit is calculated as:
A. Net profit − tax
B. Sales − operating expenses
C. EBITDA − interest cost
D. EBIT − extraordinary items
Answer: B
✔ Operating profit excludes non-operating income/expense.
Q3. A company with strong moat means it has:
A. High debt levels
B. Sustainable competitive advantage
C. Declining market share
D. Short-term business model
Answer: B
✔ Moat = durable edge that protects profitability.
Q4. Asset-light business models typically reflect:
A. Heavy capex
B. Higher return on capital
C. Low scalability
D. Higher depreciation cost
Answer: B
✔ Low capital requirement → high scalability & ROCE potential.
Q5. If a company’s current ratio is < 1, it indicates:
A. Strong liquidity
B. Short-term assets < short-term liabilities
C. Zero debt status
D. Cash-rich position
Answer: B
✔ It may struggle to meet short-term obligations.
Q6. A consistently rising inventory turnover ratio implies:
A. Slow-moving inventory
B. Improved operational efficiency
C. Declining sales
D. Over-stocking
Answer: B
✔ Higher turnover means faster inventory conversion → efficiency.
Q7. ROE increases if:
A. Debt is reduced
B. Equity base increases with same profit
C. Net profit increases with same equity
D. Total assets reduce sharply
Answer: C
✔ ROE = Net Profit / Shareholder Equity.
Q8. Higher interest coverage ratio means:
A. Company may default soon
B. Weak profits
C. Strong ability to service debt
D. Heavy interest burden
Answer: C
✔ Indicates sufficient EBIT to cover interest costs.
Q9. A sudden jump in trade receivables may signal:
A. Better credit control
B. Strong cash flows
C. Aggressive revenue recognition
D. Higher inventory liquidation
Answer: C
✔ Could indicate sales being booked without cash realization.
Q10. Free Cash Flow (FCF) represents cash available:
A. Only for debt repayment
B. After operational costs & capex
C. Before working capital adjustments
D. For government tax payments
Answer: B
✔ FCF = Operating Cash Flow − Capex.
Q11. A high debt-equity ratio indicates:
A. Low leverage
B. Low financial risk
C. High leverage & higher solvency risk
D. High profitability
Answer: C
✔ More debt = higher default risk.
Q12. Management quality in company analysis is evaluated through:
A. Technical charts
B. Corporate governance & track record
C. Market rumours
D. Dividend announcements only
Answer: B
✔ Governance, decision making & credibility indicate quality.
Q13. A company with high promoter pledge is viewed as:
A. Low risk
B. No leverage risk
C. High financial vulnerability
D. Excellent capital structure
Answer: C
✔ Pledged shares risk forced sale → price crash possibility.
Q14. Which metric best shows profitability from operations?
A. EBITDA margin
B. Dividend yield
C. EPS
D. Market cap
Answer: A
✔ EBITDA margin excludes interest, tax & depreciation → core profitability.
Q15. Negative operating cash flow but positive net profit may suggest:
A. Healthy business
B. Cash earnings stronger than reported
C. Poor working capital management
D. Strong FCF
Answer: C
✔ Profits not converting to cash is a warning sign.
Q16. Related-party transactions require scrutiny because they may indicate:
A. Higher transparency
B. Possible conflict of interest
C. Better liquidity
D. Market leadership
Answer: B
✔ Can be misused to transfer value between promoter entities.
Q17. A highly diversified conglomerate is harder to analyze primarily due to:
A. Multiple business segments
B. Strong brand power
C. Over-simplified structure
D. Low asset base
Answer: A
✔ More divisions = complex revenue drivers to evaluate.
Q18. When EPS grows but revenue remains same, reason can be:
A. Increased shares outstanding
B. Improved operating leverage or lower cost
C. Drop in margins
D. Higher taxes
Answer: B
✔ Profitability improved even without revenue growth.
Q19. A sudden spike in "other income" must be checked because it may mean:
A. Pure operating profit improvement
B. Sale of asset or non-recurring income
C. Strong business fundamentals
D. Higher customer demand
Answer: B
✔ One-off gains artificially boost profits.
Q20. Capital WIP (Work-in-Progress) increasing constantly may indicate:
A. Slow project execution / capex delay
B. Asset divestment
C. Improving asset turnover
D. Zero capex needs
Answer: A
✔ Continuous WIP buildup signals stagnating projects.
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