Deck 10: Analysis of Governmental Financial Performance

Question 1

Which of the following trends is most likely to be a signal of impending fiscal stress?

A) An increasing ratio of own source revenues to total revenues.
B) A decreasing ratio of total revenues to total expenditures.
C) A decreasing ratio of debt service expenditures to operating revenues.
D) A decreasing ratio of operating expenditures to total revenues.

Answer 1

B

Question 2

Fiscal capacity is the government's ongoing ability and willingness to supply the capital and human resources needed to meet its commitments to provide services.

Answer 2

False
Explanation: Service capacity, not fiscal capacity, is the term that best matches the definition provided.

Question 3

An effective system of monitoring financial condition may permit management to identify unfavorable financial trends in sufficient time to take preventive action to avoid financial distress.

Answer 3

True
Explanation: Monitoring effectively will contribute to a government's ability to identify potential problem areas and take action in order to avoid financial crises.

Question 4

Budget solvency is the government's ability to provide services at the level and quality that are required for the health,safety,and welfare of the community and that its citizens desire.

Question 5

A tax watchdog group is an example of an intermediary that represents citizen interests.

Question 6

The term that is defined as determining whether current-year revenues are sufficient to pay for the services provided that year and whether future taxpayers will be required to assume burdens for services previously provided is

A) Financial position.
B) Interperiod equity.
C) Financial condition.
D) Economic condition.

Question 7

Which of the following is not a typical reason why people evaluate a government's financial condition?

A) Prevent financial crises from developing.
B) Hold management accountable for the use of tax revenues.
C) Determine if the government can continue to offer the current level of services.
D) Determine whether residents will receive dividends.

Question 8

Service-level solvency is the government's ability to meet its current budget by expending no more resources than were appropriated.

Question 9

Cash solvency is the government's long-run ability to pay all the costs of doing business.

Question 10

Internal managers and credit analysts evaluate financial condition of a government in the same way.

Question 11

Which of the following financial concepts has been defined by the GASB as "the probability that a government will meet both its financial obligations to creditors,consumers,employees,taxpayers,suppliers,constituents,and others as they become due and its service obligation to constituents,both currently and in the future?"

A) Financial condition.
B) Financial position.
C) Financial leverage.
D) Liquidity.

Question 12

The financial condition of a government is easily determined by calculating the financial ratios discussed in Chapter 10.

Question 13

Management practices and legislative policies are very relevant in the evaluation of a government's financial performance.

Question 14

Environmental factors facing a government have little impact on a city's fiscal policy.

Question 15

Because they focus on historical transactions,financial statements are more relevant in evaluating a city's current financial condition than other information in the comprehensive annual financial report.

Question 16

The key cause of municipal financial crises is the failure of management to raise taxes quickly enough in response to adverse environmental factors.

Question 17

Political culture,one of the environmental factors affecting financial condition,includes such factors as form of government and the entity's economic,political,and social history.

Question 18

The term that is closely related to the concept of liquidity is

A) Financial condition.
B) Interperiod equity.
C) Financial position.
D) Economic condition.

Question 19

Failure to achieve interperiod equity may negatively impact a government's financial condition.

Question 20

The term financial position is closely related to the term liquidity while financial condition is much broader in scope,including not only financial position but also consideration of long-term solvency.

Question 21

Political culture,such as attitudes towards taxes,is an example in the ICMA's Financial Trend Monitoring Systems of:

A) Environmental factors.
B) Organizational factors.
C) Financial factors.
D) Management practices and legislative policies.

Question 22

For which of the following is a low or decreasing value of the item associated with a stronger financial condition of a governmental entity?

A) Unfunded pension liability.
B) Property values.
C) Home ownership.
D) Employment rate.

Question 23

A term that describes a government's ongoing ability and willingness to raise revenues,incur debt,and meet its financial obligations as they become due is

A) Financial condition.
B) Fiscal capacity.
C) Economic condition.
D) Financial position.

Question 24

Explain the importance of evaluating governmental financial performance.

Question 25

Explain the relationships among environmental factors,organizational factors,and financial factors in determining governmental financial condition.

Question 26

After financial ratios are calculated,the results should be compared to any of the following except

A) The same indicator from prior years.
B) Budgeted information for the government for the upcoming year.
C) Comparable government ratios calculated from the Government Finance Officers Association's Financial Indicators Database.
D) Any credit market or other red flag indicators.

Question 27

Which of the following is a measure of the extent to which the government's business-type activities are self-supporting?

A) Unrestricted net position/total revenues.
B) Business-type activities revenues/business-type activities expenses.
C) Total net position (governmental activities and business-type activities)less total net position at the beginning of the year.
D) Total revenues/total expenses.

Question 28

A measure of whether the government lived within its means in the measurement year,or was required to use prior year resources to fund a portion of current year costs,or shifted the funding of some current year costs to future periods,is

A) Business-type activities revenues/business-type activities expenses.
B) Unrestricted net position/total revenues.
C) Total revenues/total expenditures.
D) Total net position (governmental activities and business-type activities)less total net position at the beginning of the year.

Question 29

Distinguish and describe key financial performance concepts,such as financial position,financial condition,and economic condition.

Question 30

All of the following are appropriate benchmarks for a state or local government to use as a basis for comparing performance except

A) A government's own operating results and financial position from prior years.
B) International City/County Management Association's Financial Trend Monitoring System results for governments of similar types and size.
C) Federal agencies' financial information for a comparable time period.
D) Socioeconomic and demographic trends of governments of similar types and size available from U.S.Census Bureau.

Question 31

Describe how financial performance is related to the operating performance of a governmental entity.

Question 32

Which ratio or concept describes the extent to which the government has lived within its means for the year?

A) Debt to assets.
B) Interperiod equity.
C) Current ratio.
D) Revenue dispersion.

Question 33

A recognizable signal of fiscal stress is

A) Total revenues from own sources increasing as a percent of total revenues for all sources.
B) Increasing population.
C) Declining property values.
D) An increasing ratio of total revenues to total expenditures.

Question 34

One of the most important reasons to evaluate the financial performance of a government is to

A) Determine if property taxes and other revenue sources should be increased.
B) Assign responsibility for success or failure of the government to certain parties.
C) Determine whether the government is accomplishing its mission.
D) Have an early warning of impending financial difficulty for a diverse set of decision makers.

Question 35

A financial capability ratio that measures the degree to which the annual budget is loaded with disbursements to pay off long-term debt is:

A) Revenue dispersion.
B) Debt service load.
C) Financing margin-bonded debt per capita.
D) Financing margin-legal debt limit.

Question 36

Which of the following statements about credit analysts' models is true?

A) Credit analysts focus primarily on demographic statistics and management's long-term investment strategies.
B) Credit analysts have access to the same set of information that internal managers use.
C) Credit analysts are concerned with assessing a government's ability to pay interest and principal on debt when due.
D) Credit analysts rarely use comprehensive annual financial reports.

Question 37

Which of the following ratios would be most helpful in assessing the operating position of a governmental entity?

A) Net tax-supported long-term debt/population.
B) Own source revenues/total revenues.
C) Debt service expenditures/total expenditures.
D) General fund balance/operating revenues.

Question 38

Identify the following factors that affect financial condition as environmental factors (E)or financial factors (F).

Question 39

Which of the following ratios would be considered favorable if it was low?

A) Total revenues to population.
B) Debt service to total revenues.
C) Capital outlay from operating funds to operating expenditures.
D) Cash and short-term investments to current liabilities.

Question 40

A measure of the adequacy of the amount of the government's total unrestricted net position or deficit at the measurement date is

A) Unrestricted net position/total revenues.
B) Business-type activities revenues/business-type activities expenses.
C) Total net position (governmental activities and business-type activities)less total net position at the beginning of the year.
D) Total revenues/total expenses.

Question 41

"Benchmarking is a simple method for comparing one government to another." Do you agree or disagree with this statement? Explain.

Question 42

Describe some ratios that can be calculated using the basic financial statements that will help a decision maker assess the financial position of the government.

Question 43

"Financial statements are virtually useless in evaluating a city's financial condition." Do you agree with this statement? Why or why not?

Question 44

How do credit analysts assist decision makers in evaluating the credit worthiness of a state or local government?

Question 45

How do the objectives of evaluating financial condition differ between internal managers and credit analysts? How are their objectives similar?

Question 46

Discuss how despite significant improvements in the quality of governmental financial reporting over the years there are still serious,high profile public sector financial crises.How does the quality of financial reporting affect the ability to evaluate financial condition?