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Unformatted text preview: Financial Statement Analysis Exam II Review Chapter 5 Risk Analysis Calculate and interpret ratios related to short-term liquidity and long-term solvency. For instance, what does the interest coverage ratio indicate? Does the current ratio relate to liquidity or solvency? How does the fixed charges ratio differ from the interest coverage ratio? How can a firm window dress its ratios? (i.e. make them look better). What effect will a given transaction have on a ratio? For instance, will the current ratio increase or decrease if cash is used to pay off a current liability (depends). What are the factors related to credit risk? (The 9 Cs). Interpret results from Altmans Z model and Beneishs earnings manipulation model (the models will be provided on the test so you dont have to include them on your card). What are some factors that explain bankruptcy found in bankruptcy prediction research? pp 313-315. We did not cover market equity risk. Chapter 6 -Quality of Accounting Information What are the characteristics of high quality earnings? Identify sustainable and unsustainable elements of income. How does a firm calculate gains and losses from discontinued operations? Describe extraordinary gains and losses (infrequent and unusual). What types of gains and losses appear in Other Comprehensive Income? How do changes in accounting principles and accounting estimates affect the financial statements? Note that tax expense relates to income from continuing operations; discontinued operations and extraordinary items are reported on the income statement net of tax. Suggest adjustments to the financial statements to make them more useful (e.g., adjustments for restructuring charges, changes in accounting principles, discontinued operations, etc). What costs included in restructuring charges require cash outlays? Which are noncash? Why does management sometimes try to include as many expenses as possible into restructuring charges? What implications does the quality of earnings have for stock price? What are the multiples for permanent, transitory, and value irrelevant components of earnings? Calculate the implied stock price for a company given information related to its components of earnings....
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This note was uploaded on 10/13/2010 for the course ACCT 5243 taught by Professor Gooch during the Fall '08 term at Cameron University.
- Fall '08