Question 1

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

Accepted Answer

False

Question 2

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

Accepted Answer

The income or loss effects of discontinued operations are reported separately on the income statement as a "discontinued operations" section, which is located below income from continuing operations.

Question 3

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 provides an overview of the report and highlights areas that may be most important to the reader's decision-making process.

Question 4

Financial statement analysis can be used for personal investment decisions.

Accepted Answer

Financial statement analysis can provide insights into the financial health and performance of a company or organization, which can help individuals make more informed investment decisions. By evaluating factors such as profitability, liquidity, and debt, investors can better understand the potential risks and rewards associated with investing in a particular stock or security.

Question 5

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 analysis and comparison, making it an excellent standard for comparison.

Question 6

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

Accepted Answer

Extraordinary items are reported separately after the operating section in the income statement.

Question 7

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

Accepted Answer

Standards for comparison provide a basis for evaluating a company's financial performance by comparing it to industry benchmarks, previous periods, or competitors. Without standards, it would be difficult to determine whether a company is performing well or poorly.

Question 8

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

Accepted Answer

The answer of A good financial statement analysis report often...

Question 9

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 encompasses various forms of financial information, including those mentioned in the statement.

Question 10

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

Accepted Answer

Financial statement analysis provides vital information on the financial health and operational efficiency of a company, helping decision-makers to make informed choices based on factual data. A thorough analysis can reduce uncertainty and increase confidence in decision-making, ultimately leading to better business outcomes.

Question 11

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

The Financial Accounting Standards Board (FASB) allows a company to change accounting principles as long as the change is justified and the new principle is an improvement over the old one. The change must also be disclosed in the financial statements along with the reason for the change and its effect on the financial statements. This ensures that investors and other stakeholders are aware of the change and can evaluate the financial information accordingly.

Question 12

Liquidity and efficiency are considered the building blocks of financial statement analysis.

Accepted Answer

Liquidity refers to a company's ability to meet short-term obligations and efficiency refers to its ability to generate profits and manage assets effectively. Both are important in analyzing a company's financial health.

Question 13

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 14

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

Accepted Answer

The answer of Market prospects are the ability to provide...

Question 15

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

Evaluation of company performance and financial condition includes all three components - past and current performance, current financial position, and future performance and risk.

Question 16

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

Accepted Answer

The answer of General standards or guidelines of comparisons include...

Question 17

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

Accepted Answer

The answer of Profitability is the company's ability to generate...

Question 18

Profitability is the ability to generate positive market expectations.

Accepted Answer

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

Question 19

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

Accepted Answer

Internal users, such as managers, use financial statement analysis to identify areas where the company can improve its operations and profitability. This information can be used to make strategic decisions and improve efficiency and effectiveness in providing products and services.

Question 20

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 is indeed the application of analytical tools to general-purpose financial statements and related data in order to make informed business decisions.

Quiz 13: Analyzing Financial Statements