Question 1

What is financial statement analysis?

Accepted Answer

Financial statement analysis is the process of evaluating a company's financial statements such as balance sheets, income statements, and cash flow statements to make financial and strategic decisions. It involves analyzing financial ratios, trends, and other financial data to assess the company's financial health, performance, and growth potential. It helps stakeholders, investors, and creditors to identify potential risks and opportunities and make informed decisions. Financial statement analysis plays a critical role in financial planning, budgeting, and forecasting.

Question 2

What are, the basic component(s) of financial analysis and financial assets that strategic leaders must be able to understand or identify?

Accepted Answer

All of the above options are basic components of financial analysis and financial assets that strategic leaders must be able to understand or identify. Owners' equity, liabilities, strengths and weaknesses, and statement of cash flows are all important parts of financial analysis and understanding financial assets. Strategic leaders need to be able to analyze and understand these components in order to make informed decisions about their organization's finances and overall strategy.

Question 3

Identify the component(s) of the cash flow statement

Accepted Answer

The cash flow statement includes three main components: operating activities (cash inflows and outflows related to a company's core business operations), financing activities (cash inflows and outflows related to debt and equity financing), and investing activities (cash inflows and outflows related to the acquisition and sale of long-term assets). Option B refers to inventory management, not the cash flow statement. Option C refers to expenses and liabilities not related to the cash flow statement. Option D refers to components of the balance sheet.

Question 4

What does the balance sheet consist of?

Accepted Answer

The balance sheet is a financial statement that reports a company's assets, liabilities, and equity at a specific point in time. Therefore, the correct answer is choice C, which lists the three components of a balance sheet: Owners' Equity, Assets, and Liabilities. Choices A, B, and D are incorrect because they do not accurately represent the content of a balance sheet.

Question 5

Select the formula that you would use to calculate Total Liabilities and Owners' Equity.

Accepted Answer

Total Liabilities and Owners' Equity is calculated by adding up all the liabilities and the owner's equity. Therefore, the formula that includes both current and long-term liabilities as well as owner's equity is the appropriate one, which is option D.

Question 6

What is the minimal time period for an asset to be considered long-term asset?

Accepted Answer

Generally, an asset becomes a long-term asset when it is held for more than one year. However, the time period may vary based on the accounting policies and regulations of different countries or organizations.

Question 7

What is the report on operating results?

Accepted Answer

The report on operating results is commonly referred to as the income statement. Therefore, the best choice would be B. The balance sheet shows the financial position of a company at a specific point in time, the statement of cash flows shows the inflows and outflows of cash during a specific period, and the notes to financial statements provide additional information and clarification related to the financial statements.

Question 8

What is a revenue?

Accepted Answer

Revenue refers to the inflow of assets or reduction of liabilities, usually from the sale of goods or services. It is not the cost of producing those goods or services (A) or an increase or decrease in assets/liabilities without a direct relation to sales or income (C).

Question 9

What is an expense?

Accepted Answer

An expense refers to the cost incurred in producing goods or services, such as salaries, rent, or materials. It is an outflow of assets or an increase in liabilities that results in a decrease in equity. Options B, C, and D refer to other financial concepts (inflow of assets or reduction of liabilities, earnings before interest and taxes, and increase in assets or decrease in liabilities, respectively) that are different from the definition of an expense.

Question 10

Select the equation for calculating operating income.

Accepted Answer

Operating income is equal to gross profit minus total operating expenses.

Question 11

Select the equation for ROE.

Accepted Answer

ROE (Return on Equity) measures how efficiently a company is generating profits from the shareholder's investment. The formula for ROE is Net Profit divided by Shareholders Equity, which is why the correct option is D.

Question 12

If a company has an ACP of 14 how would this be calculated?

Accepted Answer

The ACP or Average Collection Period is the time taken by a company to collect its accounts receivables. It is calculated by dividing the number of days in a year (365) by the accounts receivable turnover ratio. Hence, the formula for ACP is 365/Account receivable turnover. Therefore, the correct answer is B.

Question 13

Interest Coverage Ratio is considered a _______.

Accepted Answer

Interest Coverage Ratio is a leverage ratio that measures a company's ability to pay interest expenses on its outstanding debt.

Question 14

What is an income from discontinued operations?

Accepted Answer

Income from discontinued operations is a below the line item in financial statements, meaning it is reported separately from the company's main operating activities. It includes the profit or loss generated from the sale or disposal of a subsidiary or business segment that has been discontinued.

Question 15

Owners' equity consists of:

Accepted Answer

Owners' equity represents the residual value of assets after liabilities have been subtracted. It is made up of retained earnings (profits that have not been distributed as dividends) and owners' investments in the company. The other options listed are not part of owners' equity.

Question 16

What financial statement does a company mainly use to understand the health of the firm?

Accepted Answer

The balance sheet provides a snapshot of a company's assets, liabilities, and equity at a specific point in time, which helps assess the overall financial health of the company. It shows the company's financial position, including its liquidity, solvency, and ability to meet financial obligations. While other financial statements provide important information, such as income and cash flow, the balance sheet is the most useful for understanding the overall health of the firm.

Question 17

The acid test ratio is used to identify:

Accepted Answer

The acid test ratio, also known as the quick ratio, measures a company's ability to pay off short-term debt without relying on the sale of inventory. It only includes highly liquid assets such as cash, marketable securities, and accounts receivable. This ratio is a liquidity ratio, which means it assesses a company's ability to meet short-term obligations. Therefore, option A is the best choice.

Question 18

Long term debt is:

Accepted Answer

Long term debt represents a liability that is due over a period of more than one year. It is typically used to finance large investments, such as buildings or equipment, and is repaid over a long period of time. Long term debt is therefore a long term liability for the company.

Question 19

The internal environment of a firm relates to their ______.

Accepted Answer

The internal environment of a firm refers to the resources and capabilities that a firm possesses, such as its employees, technologies, and organizational structure. These are factors that are within the control of the firm, and can be leveraged to achieve competitive advantage. The other options mentioned are part of the external environment of a firm, which are factors that are beyond the control of the firm.

Question 20

Senior executives do not need to understand the balance sheet and the income statement, only financial and accounting departments need to have this understanding.

Accepted Answer

Senior executives should have a basic understanding of financial statements such as the balance sheet and the income statement. This understanding can help them make informed decisions about the company's financial health and future strategies. However, they may not need to be as detailed or technical in their knowledge as the financial and accounting departments.

Quiz 6: Financial Analysis of a Hospitality and Tourism Organization