Question 1

Selected data from the financial statements are provided below:
 
-Refer to Rags to Riches. Which of the following would result from a horizontal analysis of the company's balance sheet?

Accepted Answer

A horizontal analysis compares financial data from one period to another to determine percentage increases or decreases. Choice A provides an example of an increase in accounts receivable during 2020. Choices B, C, and D provide static information about the balance sheet and do not reflect changes over time.

Question 2

Time series (or trend) analysis is analysis in which

Accepted Answer

Time series analysis involves comparing changes (both in dollar amounts and percentages) in financial statement items over multiple years to identify trends and patterns.

Question 3

Various financial ratios, including payout ratios, are categorized as ____________________ ratios.

Accepted Answer

The answer of Various financial ratios, including payout ratios, are...

Question 4

The working capital of a company is equal to

Accepted Answer

Working capital is defined as the difference between current assets and current liabilities. Current assets are those that can be easily converted into cash within a year, while current liabilities are debts that are due within a year. Thus, subtracting current liabilities from current assets gives us the working capital, which represents the company's short-term ability to meet its financial obligations.

Question 5

A financial analyst is comparing two companies using a top-down approach. Which of the following would cause problems in the evaluation process?

Accepted Answer

The top-down approach involves analyzing the broader economy and industry before evaluating individual companies. If the companies operate in different industries, it complicates the comparison because industry-specific factors can significantly impact financial performance.

Question 6

When an investor is evaluating whether to purchase stock in a company, which of the following considerations is most important?

Accepted Answer

The most important consideration for an investor when purchasing stock in a company is whether the company will earn a satisfactory return on the amount invested by stockholders. This measure, known as return on equity (ROE), indicates how effectively a company is using shareholders' funds to generate profits. A low ROE may indicate that the company is not using its resources efficiently and may not be a good investment. While working capital, key ratios, and cash flows are important factors to consider, they are secondary to the company's ability to generate a return for its investors.

Question 7

Each of the following is included in the MD&A section of a public company's Form 10-K except

Accepted Answer

The MD&A section of a public company's Form 10-K includes discussion and analysis of material trends, events, or known uncertainties, management's views of the financial condition and performance of the company, and statements about what management expects to occur in the future. It does not include names and experience of the company's managers, directors, and officers, as this information is typically included in other sections of the Form 10-K.

Question 8

Various financial ratios, including return ratios, are categorized as ____________________ ratios.

Accepted Answer

The answer of Various financial ratios, including return ratios, are...

Question 9

Selected data from the financial statements are provided below:
 
-Refer to Rags to Riches. Which of the following would result from a horizontal analysis of the company's income statement?

Accepted Answer

A horizontal analysis compares financial statement data over a period of time. Therefore, by conducting a horizontal analysis of the income statement, we can determine the percentage change in each item from one year to the next. The only answer choice that reflects a percentage change is A, which states that net sales increased to 140.74% of the 2019 amount. B, C, and D are all absolute values and cannot be interpreted as a percentage change.

Question 10

A company's relative mix of debt and equity financing is referred to as its __________ structure.

Accepted Answer

The answer of A company's relative mix of debt and...

Question 11

In evaluating a company's financial statements, the least useful information would be derived from a comparison of the current period data with

Accepted Answer

Comparing current period data with the same company's data from five years ago is generally considered the least useful. This is because financial performance can be significantly influenced by numerous factors over such a long period, making it difficult to draw relevant conclusions for the current period's performance. Shorter term comparisons, such as with the prior year, another company in the same industry, or against economic and industry data, are typically more relevant for assessing current financial health and trends.

Question 12

____________________ assets generally include cash, accounts receivable, and short-term investments.

Accepted Answer

The answer of ____________________ assets generally include cash, accounts receivable,...

Question 13

A banker is analyzing a company which operates in the automotive industry. Which of the following will likely be the banker's most important consideration in determining whether the company should receive a loan?

Accepted Answer

The company's ability to manage its existing debt, as indicated by a large amount of interest payments related to other outstanding loans, is a critical factor in determining its creditworthiness and ability to take on and repay additional loans.

Question 14

The auditor's opinions regarding effectiveness of a public company's internal controls and appropriateness of its financial statements are found within the Form 10-K on

Accepted Answer

The auditor's opinions regarding effectiveness of a public company's internal controls and appropriateness of its financial statements are found within Item 8 of the Form 10-K, which is titled "Financial Statements and Supplementary Data."

Question 15

Measures of ____________________ evaluate how efficiently a company uses its assets, that is, the average length of time required for assets to be consumed or replaced.

Accepted Answer

The answer of Measures of ____________________ evaluate how efficiently a...

Question 16

Annual reports are filed with the SEC on

Accepted Answer

Only the Form 10-K is specifically designed for the annual report filing with the SEC, and it includes audited financial statements, management discussion and analysis (MD&A), and other required disclosures. Form 8-K is for significant events that occur between annual reports, and Form 10-Q is for quarterly reports. The MD&A section is a required part of the annual report but not a specific SEC form.

Question 17

Horizontal analysis is analysis in which

Accepted Answer

Horizontal analysis is a type of analysis that involves comparing financial statement line items over a particular time period. In this analysis, the items on the financial statement are expressed as a percentage of a base year, which is usually the earliest year being analyzed. This allows for a comparison of how the financial statement items have changed over time in terms of percentage.

Question 18

Which of the following would report the market price of the company's stock?

Accepted Answer

The market price of the company's stock would be reported in Item 5 of Form 10-K, which includes information on the market for the company's common equity, related stockholder matters, and issuer purchases of equity securities. The balance sheet, income statement, and statement of cash flows do not typically report the market price of the company's stock.

Question 19

Which of the following statements is true regarding horizontal analysis?

Accepted Answer

Horizontal analysis expresses each financial statement line item as a percent of an earlier year amount, allowing for the comparison of changes in financial data over time. It can be used for both balance sheets and income statements.

Question 20

When a financial analyst determines the percentage change in operating income for the five-year period from 2019 to 2023, she is performing a

Accepted Answer

Time series analysis involves analyzing the change in data over a period of time. In this case, the financial analyst is determining the percentage change in operating income for a five-year period, indicating that she is performing a time series analysis. Vertical analysis involves analyzing the components of financial statements as a percentage of a base value, profitability analysis involves assessing a company's ability to generate profits, and cross-sectional analysis involves comparing financial data for different companies or industries.

Quiz 12: Financial Statement Analysis

Selected data from the financial statements are provided below: -Refer to Rags to Riches. Which of the following would result from a horizontal analysis of the company's balance sheet?