Deck 10: Analysis of Governmental Financial Performance

Question 1

The term financial position is closely related to the term liquidity.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

Electronic Municipal Market Access (EMMA)is a source of all state and local government comprehensive annual financial reports (CAFRs).

Question 6

One measure of interperiod equity is whether net revenues are exceeding a government's total expenses.

Question 7

Population demographics have an impact on financial factors such as revenue per capita.

Question 8

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

Question 9

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

Question 10

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

Question 11

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 12

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

Question 13

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

Question 14

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.

Question 15

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

Question 16

A revenues to expenditures ratio of over 0.90 is considered acceptable.

Question 17

To provide a meaningful interpretation of a financial ratio a benchmark is needed.

Question 18

Use of trend data is an acceptable method of benchmarking for governments.

Question 19

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.

Question 20

A large intergovernmental revenues ratio can be viewed as a positive sign concerning a government's financial condition.

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

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 23

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

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 24

Which of the following terms best describes a government's ongoing ability and willingness to meet its financial obligations and service commitments as they become due?

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

Question 25

Electronic Municipal Market Access (EMMA)is an electronic database of government financial reports provided by the Securities and Exchange Commission.

Question 26

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.

Question 27

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 28

Which of the following is one of the most important reasons for evaluating a government's financial performance?

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 29

Which of the following is not a typical reason for evaluating 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 30

FitchRatings,Thomson Municipal Market,and Standard & Poor's are the three major agencies that provide credit ratings for state and local government debt.

Question 31

A measure of whether the government lived within its means in the measurement year,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 32

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 33

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 34

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 35

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 36

Which of the following terms is defined as determining whether current-year revenues are sufficient to pay for current-year services and whether future taxpayers will be required to assume the burdens of services previously provided?

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

Question 37

Factors common to the bond rating agencies' risk assessment are the economy and a government's debts.

Question 38

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) Credit analyst measures or other red flag indicators.

Question 39

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 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

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 42

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

Question 43

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 44

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

Question 45

Which of the following governments would have publicly accessible information available through the Electronic Municipal Market Access (EMMA)?

A) A city that had issued revenue bonds.
B) A county that has entered into a capital lease.
C) All state and local governments over 25,000 in population.
D) Those state and local governments who have issued debt subject to Securities and Exchange Commission (SEC) oversight.

Question 46

Which of the following financial capability indicators is a measure of a government's capacity to issue bonded debt?

A) Revenue dispersion.
B) Property taxes per capita.
C) Bonded debt per capita.
D) Available legal debt limit.

Question 47

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

Question 48

Explain the importance of evaluating governmental financial performance.

Question 49

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

Question 50

An investor could find all but one of the following pieces of information through the Electronic Municipal Market Access (EMMA). Which of the following is not available on EMMA?

A) Credit rating for the debt issuance.
B) Comprehensive Annual Financial Report.
C) Interest rate and size of the debt issuance.
D) Credit report on the government issuing the debt.

Question 51

The following are key terms in Chapter 10 that relate to analysis of governmental financial performance:
A.Benchmarking
B.Budgetary solvency
C.Cash solvency
D.Economic condition
E.Financial condition
F.Financial position
G.Fiscal capacity
H.Long-run solvency
I.Service capacity
J.Service-level solvency
For each of the following definitions,indicate the key term from the list above that best matches by placing the appropriate letter in the blank space next to the definition.

Question 52

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

Question 53

Match the following financial ratios that are based on comprehensive annual financial report (CAFR)information with the explanation for that ratio.Answers can only be used once.

Question 54

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

Question 55

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

Question 56

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 57

Discuss how despite significant improvements in the quality of government 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?

Question 58

The three major rating agencies for governments have each developed quantitative tools for assessing credit risk. Which of the following general factors is used by all three rating agencies in assessing credit risk?

A) Economy.
B) Budgetary flexibility.
C) Revenue dispersion.
D) Geographic location.

Question 59

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