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SD1-Introduction to Security Analysis

SD1-Introduction to Security Analysis - CHAPTER 1 AN...

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CHAPTER 1 AN INTRODUCTION TO SECURITY ANALYSIS LEARNING OBJECTIVES 1. The many kinds of financial professionals who use security analysis in their jobs and the types of analyses they do. 2. The sources of information security analysts use to prepare their analyses. 3. How the financial reporting environment affects security analysis and how regulators, management, and auditors influence financial reporting. 4. Why analysts consider accounting method choices, accounting estimates, and disclosures when using financial reporting to prepare a valuation. 5. What are the limitations of generally accepted accounting principles in presenting information for valuation purposes. 6. How analysts assess the quality of financial information. 7. How equity security analysis consists of four phases: business analysis, financial statement analysis, forecasting, and valuation. TRUE/FALSE QUESTIONS 1. Buy-side analysts advise clients on financial matters such as corporate restructurings, acquisitions, and divestitures. (easy, L.O. 1, Section 1, false) 2. One condition for the acquisition of a private company would be an audit of the financial statements prepared under GAAP. (moderate, L.O. 2, Section 2, true) 3. Due to breakthroughs in technology over the last decade, sell-side analysts may have to find new ways to add value to their services. (moderate, L.O. 2, Section 2, true) 4. SEC Regulation FD prohibits firms from providing information to securities analysts and other market professional unless that information is already in the public domain. (moderate, L.O. 2, Section 2, true) 5. The problem of asymmetric information occurs when investors know more about the firm than the managers do. (moderate, L.O. 3, Section 3, false) 6. The investors and managers of publicly held companies each have a role in setting accounting standards in the United States. (easy, L.O. 3, Section 3, false) 7. The primary stated objective of GAAP is to ensure that the information in financial statements is useful to investors. (easy, L.O. 3, Section 3, true) 1
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8. The Securities and Exchange Commission consists of seven commissioners who are appointed by the president (subject to Senate consent) for staggered five-year terms. (easy, L.O. 3, Section 3, false) 9. Before issuing an accounting standard, the SEC goes through a due process procedure, gathering public comment on the issues and a draft of the standard. (easy, L.O. 3, Section 3, false) 10. Management has significant influence over financial statements; that can create situations in which management’s personal goals conflict with the goal of financial reporting to provide useful information to investors. (moderate, L.O. 4, Section 3, true) 11. There would be no limitations to GAAP if management was free of biases in preparing financial statements and audits were completely accurate and free of error. (moderate, L.O. 5, Section 4, false)
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SD1-Introduction to Security Analysis - CHAPTER 1 AN...

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