12 x10 Financial Statement Analysis

12 x10 Financial Statement Analysis - MODULE 10 FINANCIAL...

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Financial Statement Analysis MODULE 10 FINANCIAL STATEMENT ANALYSIS THEORIES: 6. Management is a user of financial analysis. Which of the following comments does not represent a fair statement as to the management perspective? A. Management is always interested in maximum profitability. B. Management is interested in the view of investors. C. Management is interested in the financial structure of the entity. D. Management is interested in the asset structure of the entity. Limitations 1. A limitation in calculating ratios in financial statement analysis is that A. it requires a calculator. B. no one other than the management would be interested in them. C. some account balances may reflect atypical data at year end. D. they seldom identify problem areas in a company. 2. Which of the following is not a limitation of financial statement analysis? A. The cost basis. C. The diversification of firms. B. The use of estimates. D. The availability of information. 5. Which of the following does not represent a problem with financial analysis? A. Financial statement analysis is an art; it requires judgment decisions on the part of the analyst. B. Financial analysis can be used to detect apparent liquidity problems. C. There are as many ratios for financial analysis as there are pairs of figures. D. Some industry ratio formulas vary from source to source. 77. The use of alternative accounting methods: A. is not a problem in ratio analysis because the footnotes disclose the method used. B. may be a problem in ratio analysis even if disclosed. C. is not a problem in ratio analysis since eventually all methods will lead to the same end. D. is only a problem in ratio analysis with respect to inventory. Industry Analysis 3. Suppose you are comparing two firms in the steel industry. One firm is large and the other is small. Which type of numbers would be most meaningful for statement analysis? A. Absolute numbers would be most meaningful for both the large and small firm. B. Absolute numbers would be most meaningful in the large firm; relative numbers would be most meaningful in the small firm. C. Relative numbers would be most meaningful for the large firm; absolute numbers would be most meaningful for the small firm. D. Relative numbers would be most meaningful for both the large and small firm, especially for interfirm comparisons. 4. Which of these statements is false? A. Many companies will not clearly fit into any one industry. B. A financial service uses its best judgment as to which industry the firm best fits. C. The analysis of an entity's financial statements can be more meaningful if the results are compared with industry averages and with results of competitors. D. A company comparison should not be made with industry averages if the company does not clearly fit into any one industry.
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This note was uploaded on 11/22/2010 for the course CAC BSA taught by Professor Kairus during the Spring '10 term at Korea University.

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12 x10 Financial Statement Analysis - MODULE 10 FINANCIAL...

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