Question 1

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 insights and benchmarks for comparison in industry or market analysis.

Question 2

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

Accepted Answer

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

Question 3

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

The statement is true. A current ratio of 2:1 and an acid-test ratio of 1:1 are generally considered standard benchmarks based on experience.

Question 4

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

Accepted Answer

Comparing a company's financial performance to that of its competitors and industry peers provides valuable context and helps identify strengths and weaknesses.

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

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, not 0 percent.

Question 7

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

Accepted Answer

Vertical analysis involves comparing financial statements to a base amount, such as a percentage of total assets or net sales, in order to analyze the relative proportions of different line items.

Question 8

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

Accepted Answer

Intra-company analysis is a form of financial analysis that compares a company's current performance to its own prior performance. This is done by analyzing key financial ratios, such as the current ratio, net profit margin, and return on equity, among others. The goal is to identify trends and patterns in the company's financial performance over time and to identify areas where the company may need to improve or take action to maintain its competitive position in the market.

Question 9

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 10

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

Percent change calculations require both periods to have values of the same sign to avoid division by zero or undefined results.

Question 11

Intra-company analysis is based on comparisons with competitors.

Accepted Answer

Intra-company analysis involves analyzing an organization's own performance over time and comparing different departments or divisions within the same company. It does not involve comparisons with competitors. Competitor analysis is a separate type of analysis that focuses on benchmarking against rivals.

Question 12

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, compares financial data over a period of time to identify changes and trends in a company's financial performance. By comparing this year's financial data to last year's, a company is using horizontal analysis.

Question 13

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

Accepted Answer

These three tools are indeed some of the most common and widely used in financial analysis.

Question 14

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

Accepted Answer

Percent change is calculated by comparing a value to a base period value. If there is no value in the base period, there is nothing to compare it to, and therefore no percent change can be computed.

Question 15

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

Accepted Answer

Standards for comparison are necessary to make objective judgments about a company's performance. Without standards, it is difficult to determine whether the company is performing well or not. Standards can be internal, such as previous performance or industry standards, or external, such as competitors or market expectations.

Question 16

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 a thorough analysis of a company's financial statements, which helps decision-makers to make informed decisions and reduce uncertainty. It examines key financial indicators, such as profitability, liquidity, and leverage, and compares them with industry benchmarks and historical trends. As a result, it enables decision-makers to identify potential risks and opportunities, assess the company's financial health and performance, and make sound business decisions.

Question 17

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

The five general-purpose financial statements are the income statement, balance sheet, statement of stockholders' equity, statement of cash flows, and notes to financial statements.

Question 18

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 to provide a clear understanding of the financial status of the company. This helps the readers to make informed decisions about investing in the company.

Question 19

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

Accepted Answer

If an item's value drops from a positive number to zero, it represents a complete loss of value, which is a 100% decrease.

Question 20

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

Accepted Answer

Horizontal analysis compares financial data over time, typically using financial statements. It is also known as trend analysis, and it helps to identify changes and patterns that may have occurred in a company's financial condition and performance.

Quiz 17: Analysis of Financial Statements