Question 1

Market prospects are the ability to provide financial rewards sufficient to attract and retain financing.

Accepted Answer

False

Question 2

Profitability is the company's ability to generate future revenues and meet long-term financial obligations.

Accepted Answer

False

Question 3

Financial statement analysis can be used for personal investment decisions.

Accepted Answer

Financial statement analysis can be used by individuals to make informed decisions about their personal investments. By analyzing financial statements of companies, individuals can assess the financial health of the company and its future performance potential, which can inform their investment decisions.

Question 4

A financial statement analysis report should include a brief table of contents to help users focus on those areas most relevant to their decisions.

Accepted Answer

A brief table of contents can help guide the reader to the sections of the report that are most important to their decision-making process, making the report more useful and user-friendly.

Question 5

Horizontal analysis is the comparison of a company's financial condition and performance to a base amount.

Accepted Answer

The answer of Horizontal analysis is the comparison of a...

Question 6

Profitability is the ability to generate positive market expectations.

Accepted Answer

The answer of Profitability is the ability to generate positive...

Question 7

Extraordinary items are reported in the operating section of the income statement.

Accepted Answer

Extraordinary items are reported separately after the income from continuing operations in the income statement, and are not included in the operating section.

Question 8

If a company's activities include operations that are being discontinued,the income or loss from the discontinued operations are included on the income statement as part of income from continuing operations.

Accepted Answer

Income or loss from discontinued operations should be reported separately on the income statement, after income or loss from continuing operations. It should not be included as part of income from continuing operations.

Question 9

Standards for comparison are necessary when making judgments about a company's financial performance.

Accepted Answer

Standards for comparison, such as industry averages or historical data, help to provide context for a company's financial performance and allow for more informed judgments to be made. Without these standards, it can be difficult to determine whether a company's financial performance is favorable or unfavorable.

Question 10

A financial statement analysis report helps to reduce uncertainty in business decisions through a rigorous and sound evaluation.

Accepted Answer

A financial statement analysis report provides relevant financial information to decision-makers to make informed decisions about a company's financial health and future prospects. By analyzing financial ratios such as profitability, liquidity, and solvency, it helps to reduce uncertainty and provides a comprehensive understanding of a business's financial position.

Question 11

Financial statement analysis is the application of analytical tools to general-purpose financial statements and related data for making business decisions.

Accepted Answer

Financial statement analysis involves the use of analytical tools to assess the financial performance and position of a company for making informed business decisions. These tools include financial ratios, trend analysis, and comparative analysis, among others.

Question 12

Liquidity and efficiency are measures of a company's ability to meet short-term obligations.

Accepted Answer

Liquidity refers to a company's ability to meet short-term obligations, while efficiency measures how well the company uses its resources to generate profit.

Question 13

Vertical analysis is the comparison of a company's financial condition and performance through time.

Accepted Answer

The answer of Vertical analysis is the comparison of a...

Question 14

Measures taken from a selected competitor or a group of competitors are often excellent standards of comparison for analysis.

Accepted Answer

Measures taken from competitors can provide valuable benchmarks for performance analysis, as they offer a point of reference in terms of industry standards and best practices. By comparing your own company's performance against that of your competitors, you can identify areas for improvement and develop strategies for achieving competitive advantage.

Question 15

Financial reporting includes not only general purpose financial statements,but also information from SEC filings,press releases,shareholders' meetings,forecasts,management letters,auditor's reports,and Webcasts.

Accepted Answer

Financial reporting consists of all of the mentioned sources of information, not just general purpose financial statements.

Question 16

A company can change from one acceptable accounting principle to another as long as the change improves the usefulness of information in its financial statements.

Accepted Answer

According to the accounting principle of consistency, companies should use the same accounting principles and methods from period to period. However, a change can be made if it improves the usefulness of information in the financial statements and is disclosed appropriately. This is known as a change in accounting principle and should be reported in the notes to the financial statements.

Question 17

For internal users,one purpose of financial statement analysis is to provide information helpful in improving the company's efficiency and effectiveness in providing products and services.

Accepted Answer

Financial statement analysis can help internal users identify areas where the company can improve its operations and performance, leading to increased efficiency and effectiveness in providing products and services.

Question 18

A good financial statement analysis report often includes the following sections: Executive summary,analysis overview,evidential matter,assumptions,key factors,and inferences.

Accepted Answer

This is true. A comprehensive financial analysis report typically includes an executive summary, an overview of the analysis conducted, evidential matter such as financial statements and ratios, well-supported assumptions, consideration of key factors, and inferences drawn from the analysis.

Question 19

The evaluation of company performance and financial condition includes evaluation of (1)past and current performance,(2)current financial position,and (3)future performance and risk.

Accepted Answer

The statement accurately describes the three factors that are evaluated for the performance and financial condition of a company.

Question 20

General standards or guidelines of comparisons include the 2 to 1 level for the current ratio and 1 to 1 level for the acid-test ratio.

Accepted Answer

This statement is true. The 2 to 1 level for the current ratio and 1 to 1 level for the acid-test ratio are widely accepted as general standards or guidelines for these financial ratios.

Quiz 13: Analysis of Financial Statements