Question 1

The percentage change in any individual item shown on comparative financial statements is calculated by dividing the dollar amount of the change from the base period to the current period by:
A) the amount shown for the current period.
B) the base-period amount.
C) the average of the amounts shown for the base and the current periods.
D) the amount estimated for the future period.

Accepted Answer

The percentage change is calculated by comparing the dollar amount of the change to the base period amount. Therefore, it is divided by the base-period amount.

Question 2

When computing trend percentages:
A) the current year is always equal to 100%.
B) the base year is always the latest year.
C) the base year is always equal to 100%.
D) the base year is equal to the current year plus the previous year divided by two.

Accepted Answer

Trend percentage is a method of calculating the percentage change in a variable over time. It compares the current year's value to the base year's value, which is always set to 100%. Therefore, choice C is correct. Choices A, B, and D are incorrect because they do not accurately reflect the nature of trend percentages.

Question 3

Horizontal analysis is performed on:
A) only the income statement.
B) only the balance sheet.
C) only the statement of retained earnings
D) the income statement, the balance sheet, and the statement of retained earnings.

Accepted Answer

Horizontal analysis involves comparing financial data from multiple periods to identify changes in performance. Therefore, it is performed on the income statement, balance sheet, and statement of retained earnings to obtain a comprehensive overview of an entity's financial performance.

Question 4

If a company has sales of $250 in 2010 and $225 in 2011, the percentage increase from 2010 to 2011 is 10%.

Accepted Answer

The answer of If a company has sales of $250...

Question 5

Trend analysis using income statement data is widely used for predicting the future.

Accepted Answer

Trend analysis of income statement data is a commonly used method to predict the future financial performance of a company. This analysis involves examining historical income statement data over a period of time to identify trends and patterns that can help make informed predictions about the company's future revenue, expenses, and profitability.

Question 6

A form of horizontal analysis that indicates the direction a business is taking is:
A) benchmarking.
B) economic value added analysis.
C) vertical analysis.
D) trend percentages.

Accepted Answer

Trend percentages track the change in financial data over a period of time and show the direction the business is taking. This form of horizontal analysis compares the current year's financial data to the base year's financial data and expresses the change as a percentage. Therefore, trend percentages are an effective way to track the direction of a business. Benchmarking is a comparative form of analysis that compares a business to its competitors, industry standards, or best practices. Economic value added analysis is a performance metric to evaluate how much value a business is creating with its available resources. Vertical analysis is a form of analysis that shows the relationship between financial statement items and expresses them as a percentage of total assets or liabilities. None of these are specifically designed to show the direction a business is taking.

Question 7

The percentage change in financial statement balances is computed by dividing the dollar amount of the most recent period by the base period dollar amount.

Accepted Answer

The percentage change is typically computed by subtracting the base period dollar amount from the most recent period dollar amount, dividing that result by the base period dollar amount, and then multiplying by 100 to convert the result to a percentage.

Question 8

The primary focus of horizontal analysis is:
A) percentage changes in comparative financial statements.
B) the balance sheet only.
C) the changes in individual financial statement amounts as a percentage of some related total.
D) the change in key financial statement ratios over a certain time frame.

Accepted Answer

The primary focus of horizontal analysis is to calculate the percentage changes in comparative financial statements over a period of time. This allows for an evaluation of the increase or decrease of financial statement line items, and helps identify potential trends or areas of concern.

Question 9

Horizontal analysis and trend analysis are synonymous.

Accepted Answer

The answer of Horizontal analysis and trend analysis are synonymous....

Question 10

Horizontal analysis compares financial statement items in the current period with other items in the current period.

Accepted Answer

Horizontal analysis compares financial statement items over multiple periods to identify trends and changes over time, not within the same period.

Question 11

If a company has sales of $150 in 2010 and $225 in 2011, the percentage change from 2010 to 2011 is 50%.

Accepted Answer

Percentage Change = ((Final Value - Initial Value)/Initial Value) x 100
Percentage Change = ((225-150)/150) x 100
Percentage Change = (75/150) x 100
Percentage Change = 0.5 x 100
Percentage Change = 50%
Therefore, the statement is true.

Question 12

Vertical analysis highlights changes in financial statement balances from period to period.

Accepted Answer

Vertical analysis involves comparing each item on a financial statement to a base item within the same period, not across different periods.

Question 13

Trend percentages are computed only for balance sheet items.

Accepted Answer

Trend percentages can be computed for both balance sheet and income statement items.

Question 14

Period to period percentage change in comparative financial statements is often called:
A) benchmarking.
B) horizontal analysis.
C) vertical analysis.
D) common-size statements.

Accepted Answer

Period to period percentage change in comparative financial statements is often called horizontal analysis. This analysis helps to identify trends and changes over time in a company's financial performance. It is done by calculating the percentage change in different line items from one period to another.

Question 15

It is generally considered more useful to know the percentage change in financial statement amounts from year to year than to know the absolute dollar amount.

Accepted Answer

Knowing the percentage change allows for better comparison and analysis of the financial statements, as it takes into account the size and scale of the company. Absolute dollar amounts can be misleading and don't provide as much context.

Question 16

The best way to analyze a company is by examining the financial data for several years.

Accepted Answer

Examining financial data for several years can provide insight into a company's stability, growth, profitability, and overall financial health. It allows for the identification of patterns, trends, and potential risks or opportunities. Other factors such as management, industry trends, and competitive landscape should also be considered, but analyzing financial data is a key component of evaluating a company.

Question 17

The analysis of percentage changes in comparative statements is known as:
A) economic value added analysis.
B) vertical analysis.
C) horizontal analysis.
D) benchmarking analysis.

Accepted Answer

Horizontal analysis is the analysis of percentage changes in comparative statements over a period of time. Option A, economic value added analysis, is a tool that measures a company's financial performance based on the residual wealth calculated, i.e., the residual income the company or project generates after accounting for the cost of invested capital. Option B, vertical analysis, involves presenting the financial statements in percentage terms to compare each line item's relative size in a statement. Option D, benchmarking analysis, involves comparing a company's performance against industry benchmarks or competitors to identify areas for improvement.

Question 18

Horizontal analysis of financial statements is an:
A) analysis tool.
B) analysis theory
C) analysis principle.
D) analysis requirement.

Accepted Answer

Horizontal analysis is a financial analysis tool used to compare financial data over a number of reporting periods to identify trends and changes. Therefore, option A is the correct answer. Option B, C, and D are not applicable as horizontal analysis is not a theory, principle, or requirement, but it is a financial analysis tool.

Question 19

The horizontal analysis formula is the current year amount:
A) divided by the base year amount.
B) minus the base year amount divided by the base year amount.
C) minus the base year amount divided by current year amount.
D) added to the base year amount divided by the base year amount.

Accepted Answer

The horizontal analysis formula is ((Current Year Amount - Base Year Amount) / Base Year Amount) * 100. Therefore, the correct option is to subtract the base year amount from the current year amount and then divide it by the base year amount. Option B correctly represents this formula.

Question 20

Horizontal analysis is most closely related to:
A) trend analysis.
B) economic value added analysis.
C) vertical analysis.
D) benchmarking.

Accepted Answer

Horizontal analysis involves comparing financial statement data over two or more time periods to identify changes and trends. Therefore, it is most closely related to trend analysis. Option B (economic value added analysis) is a financial performance metric that measures the amount of value created by a company above the required return of investors. Option C (vertical analysis) involves comparing financial statement line items to a base amount, such as total revenue or total assets, to determine their relative proportions. Option D (benchmarking) is the process of comparing a company's performance metrics to those of other companies in the same industry to identify areas of improvement.

Quiz 13: Financial Statement Analysis

The percentage change in any individual item shown on comparative financial statements is calculated by dividing the dollar amount of the change from the base period to the current period by:

When computing trend percentages:

Horizontal analysis is performed on:

If a company has sales of $250 in 2010 and $225 in 2011, the percentage increase from 2010 to 2011 is 10%.

Trend analysis using income statement data is widely used for predicting the future.

A form of horizontal analysis that indicates the direction a business is taking is:

The percentage change in financial statement balances is computed by dividing the dollar amount of the most recent period by the base period dollar amount.

The primary focus of horizontal analysis is:

Horizontal analysis and trend analysis are synonymous.

Horizontal analysis compares financial statement items in the current period with other items in the current period.

If a company has sales of $150 in 2010 and $225 in 2011, the percentage change from 2010 to 2011 is 50%.

Vertical analysis highlights changes in financial statement balances from period to period.

Trend percentages are computed only for balance sheet items.

Period to period percentage change in comparative financial statements is often called:

It is generally considered more useful to know the percentage change in financial statement amounts from year to year than to know the absolute dollar amount.

The best way to analyze a company is by examining the financial data for several years.

The analysis of percentage changes in comparative statements is known as:

Horizontal analysis of financial statements is an:

The horizontal analysis formula is the current year amount:

Horizontal analysis is most closely related to: