Deck 10: Analysis of Government Financial Performance

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

The financial condition of a government is easily determined by calculating a set of financial ratios.

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

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

Question 13

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 its citizens.

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

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

Question 16

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

Question 17

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

Question 18

An effective system for evaluating financial performance helps management to assess whether financial performance can meet creditor and service obligations.

Question 19

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

Question 20

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

Question 21

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) A decreasing ratio of total operating expenditures to population.

Question 22

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) Net revenues/total expenses.
D) Total net position (governmental activities and business-type activities) less total net position at the beginning of the year divided by beginning net position.

Question 23

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 24

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 divided by total beginning net position.
D) Total revenues/total expenses.

Question 25

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 26

Which of the following is not a typical reason for evaluating a government's financial condition?

A) Help identify and prevent financial crises from developing.
B) Hold management accountable for complying with laws and regulations.
C) Determine if the government can continue to offer the needed level of services.
D) Determine whether residents will receive dividends.

Question 27

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

Question 28

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 29

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 30

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 31

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 divided by beginning net position.
D) Net revenues/total expenses.

Question 32

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

Question 33

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 34

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 35

According to the GASB, which of the following financial concepts can be defined as the probability that a government will meet its financial obligations, both currently and in the future?

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

Question 36

Which of the following ratios would be most helpful in assessing the operating position of a government 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/General Fund operating revenues.

Question 37

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 38

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

Question 39

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 40

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

Question 41

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

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

Question 42

Three major rating agencies (Fitch, Moody's, and Standard and Poor's) 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 43

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

Question 44

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

Question 45

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

Question 46

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

Question 47

Explain the importance of evaluating government financial performance.

Question 48

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 49

For each of the following financial ratios that are based on comprehensive annual financial report (CAFR) information by selecting the appropriate letter of the explanation for that ratio. Answers can only be used once.
A. An indicator of interperiod equity.
B. An indicator of the government's commitment to replacement of capital assets.
C. An indicator of the government's reliance on revenues it does not directly control.
D. A measure of the degree to which government assets have been funded with debt.
E. An indicator of the government's ability to pay its 60- to 90-day obligations.
F. A measure of the government's capacity to issue debt.
G. A measure of capital asset useful service life.
H. A measure of the government's liquidity.
I. An indicator of taxpayer debt burden.
J. An indicator of the government's ability to withstand financial emergencies.
________ 1. General fund balances/General Fund operating revenues
________ 2. (Cash + short-term investments)/Current liabilities
________ 3. General obligation long-term debt/Assessed valuation
________ 4. Capital outlay from operating funds/Operating expenditures
________ 5. General bonded debt/Legal debt limit
________ 6. Accumulated depreciation/Average cost of depreciable assets
________ 7. Net revenues/Total expenses
________ 8. Charges for services/Total revenues
________ 9. Total liabilities/Total assets
________ 10. Current assets/Current liabilities

Question 50

Select the key term that relate to analysis of government financial performance from the list that best matches with the following definition.
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
________ 1. The probability that a government will meet its financial obligations as they become due and its service obligations to constituencies
________ 2. A composite of a government's financial health and its ability and willingness to meet its financial obligations and its commitments to provide services
________ 3. The method of identifying a number that represents a target to which actual results are compared, or a basis for comparison
________ 4. The government's ongoing ability and willingness to raise revenues, incur debt, and meet its financial obligations as they become due
________ 5. The adequacy of cash and short-term claims to cash to meet current obligations and those expected in the near future
________ 6. A government's ability to provide services at the level and quality that citizens desire
________ 7. A government's ability to generate enough cash over a 30- or 60-day period to pay its bills

Question 51

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 52

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

Question 53

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

Question 54

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 55

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 56

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

Question 57

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 58

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

Question 59

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 60

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.