Question

1. What is the formula for the contribution margin in Breakeven analysis?

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2. The “matching” principle in accounting refers to:
   1. Recognizing revenue at the time of sale and delivery
   2. Financing short term assets with short term financing
   3. Recognizing revenue and related expenses in the same period.

3. Which is considered a “red flag” when reading an annual report:
   1. Changing messaging
   2. Negative cash flow from operations
   3. Failure to pay dividends in current and prior two years

4. What is the Breakeven formula when a profit is included:

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5. What is the current unemployment rate?

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6. List three filters and the filter indicator for each that you could use when selecting stocks in FINVIZ?
   1. _________________________________

2. _________________________________

3. _________________________________

Answer 1

As per rules I am answering the first 4 subparts of the question

1 Contribution margin = (Selling price-Variable cost) / Selling price

2: c

As per the matching principle the revenues should be recognized in the same period as the expenses that are incurred to earn the revenues.

3: b

Negative cash flow from operations is a red flag because it indicate that the company has not been able to generate cash from its operations. Changing messaging is not a red flag .Also non payment of dividends is not a negative sign since it may indicate retained earnings for future growth.

4: Break even units formula = (Fixed costs+ Profit)/ Contribution per unit