Question 1

When no value is in the base period,no percent change is computable.

Accepted Answer

Percent change requires a base period value for comparison. Without this value, there is no way to calculate percent change.

Question 2

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 insight into industry standards and best practices, making them a useful benchmark for analysis. By comparing your own performance to that of competitors, you can identify areas where you may need to improve or where you are doing well in relation to others in your industry.

Question 3

If a company is comparing this year's financial performance to last year's financial performance,it is using horizontal analysis.

Accepted Answer

Horizontal analysis (also known as trend analysis) involves comparing financial data from one period to another period. In this case, the company is comparing this year's financial performance to last year's financial performance, which is an example of horizontal analysis.

Question 4

Horizontal analysis is the comparison of a company's financial condition and performance across time.

Accepted Answer

Horizontal analysis involves examining changes in a company's financial statements over multiple periods, typically focusing on changes in key line items such as revenues, expenses, and profits. By comparing financial data from different time periods, analysts can identify trends and changes in a company's business operations, as well as evaluate its overall financial health and performance over time.

Question 5

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

Accepted Answer

Vertical analysis is a method of financial statement analysis in which each entry for each of the three major categories of accounts (assets, liabilities, and equities) in a balance sheet is represented as a proportion of the total account. It is not about comparing across time, but rather about analyzing the structure of financial statements at a single point in time.

Question 6

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

Accepted Answer

A comprehensive financial statement analysis report typically includes sections such as an executive summary, analysis overview, evidential matter, assumptions, key factors, and inferences to provide a thorough understanding of the financial health and performance of a business.

Question 7

Three of the most common tools of financial analysis include horizontal analysis,vertical analysis,and ratio analysis.

Accepted Answer

Horizontal analysis compares financial data over a period of time, vertical analysis compares financial data within the same period but in relation to each other, and ratio analysis involves comparing and analyzing different financial ratios. These three tools are commonly used in financial analysis.

Question 8

Standards for comparison are not generally necessary when making judgments about a company's performance.

Accepted Answer

In order to make a meaningful judgment about a company's performance, it is important to have standards or benchmarks for comparison. Without such standards, it is difficult to determine if a company is performing well or poorly relative to its industry peers, competitors, or historical performance. Standards might include financial metrics like revenue growth, profit margin, return on investment, or stock price performance, as well as non-financial factors like customer satisfaction, employee engagement, or environmental sustainability.

Question 9

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 information and insights into a company's financial health, which can help decision-makers make more informed and confident decisions. By examining financial ratios, trends, and other data, uncertainties can be reduced, allowing for more strategic planning and actions.

Question 10

A good financial report does not link interpretations and conclusions of analysis with the underlying information.

Accepted Answer

A good financial report should link interpretations and conclusions of analysis with the underlying information, and provide clear explanations and evidence to support those interpretations and conclusions. This helps readers understand how the analysis was conducted and how the conclusions were reached, and enables them to make informed decisions based on the report.

Question 11

Standards for comparison when interpreting financial statement analysis include competitor and industry performance data.

Accepted Answer

Standards for comparison are essential for interpreting financial statement analysis, and competitor and industry performance data are commonly used for this purpose. These standards provide a context for evaluating a company's financial performance and identifying areas where improvement is needed. Comparing a company's financial ratios and metrics to those of its competitors and industry peers can reveal strengths and weaknesses, as well as opportunities and threats within the market environment.

Question 12

Intra-company analysis compares a company's current performance to its own prior performance.

Accepted Answer

Intra-company analysis looks at a company's own financial and operational data from previous periods to measure its current performance and identify trends. This type of analysis helps a company to identify areas of improvement and opportunities for growth.

Question 13

General-purpose financial statements include the (1)income statement, (2)balance sheet, (3)statement of stockholders' equity (or statement of retained earnings), (4)statement of cash flows,and (5)notes to these statements.

Accepted Answer

This is a true statement. General-purpose financial statements include the income statement, balance sheet, statement of stockholders' equity (or statement of retained earnings), statement of cash flows, and notes to these statements.

Question 14

When an item has a value in the base period and zero in the analysis period,the decrease is 100 percent.

Accepted Answer

This is because the percentage change formula is (new value - old value)/old value x 100%. In this case, the new value is zero, so the formula becomes (0 - old value)/old value x 100%, which simplifies to -100%.

Question 15

If a company is comparing its financial condition or performance to a base amount,it is using vertical analysis.

Accepted Answer

Vertical analysis involves expressing each item in the financial statements as a percentage of a base amount, such as total assets or net sales, in order to analyze the financial condition and performance of a company.

Question 16

Intra-company analysis is based on comparisons with competitors.

Accepted Answer

Intra-company analysis is based on comparisons within a company's own financial data over different periods of time, while inter-company analysis is based on comparisons with competitors.

Question 17

General standards of comparisons,developed from experience,include the 2:1 level for the current ratio and 1:1 level for the acid-test ratio.

Accepted Answer

These are general standards of comparison for these ratios. However, it is important to note that the appropriate level may vary depending on the industry and specific circumstances of the company being analyzed.

Question 18

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 19

When a negative amount is in the base period and a positive amount is in the analysis period (or vice versa),a meaningful percent change cannot be calculated.

Accepted Answer

When transitioning from a negative to a positive amount (or vice versa), the calculation of a percent change is not meaningful because it would imply an infinite or undefined percentage change, as the base for the calculation starts from a point of no value (zero) and crosses over to a positive or negative value, making the traditional percentage change formula inapplicable.

Question 20

When an item has a value in the base period and zero in the analysis period,the decrease is 0 percent.

Accepted Answer

When an item has a value in the base period and zero in the analysis period, the decrease is 100 percent, as the item's value has decreased by its entire amount from the base period to the analysis period.

Quiz 13: Analysis of Financial Statements