05-Financial Stratement Analysis

05-Financial Stratement Analysis - True-False 1....

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True-False 1. Time-series analysis helps identify financial trends over time for a sin- gle company. 2. Managers’ ability to freely choose among several alternative reporting methods makes it more difficult for a financial analyst to evaluate the activities and condition of a company. 3. GAAP filters data needed for a complete and faithful picture in the fi- nancial reports. 4. The first step to informed financial statement analysis is a careful ex- amination of the auditor’s opinion. 5. Common size income statements recast each statement item as a per- cent of total assets. 6. Trend income statements recast each statement item as a percent of sales. 7. Trend statements provide a clearer indication of growth and decline than do common size statements. 8. Asset turnover is defined as sales divided by total assets. 9. The statement of cash flow is the most useful source of information when analyzing a company’s credit risk. 10. The quick ratio measures the most immediate liquidity of a company. 11. Activity ratios describe the profitability of a company. 12. The only way a company can increase its operating profits per asset dollar is to expand the amount of sales generated from each asset dollar. 13. The current asset turnover ratio helps the analyst identify efficiency gains from improved accounts receivable and inventory management. 14. Differences in the business strategies companies adopt give rise to economic differences that are reflected as differences in asset utilization only. 15. Credit risk analysis uses financial ratios that focus on an assessment of liquidity and solvency. 16. The financial structure leverage ratio measures the degree to which the company uses long-term debt to finance assets. 17. Financial leverage is beneficial when the company earns more than the incremental after-tax cost of debt. 18. Non-GAAP earnings like EBITDA ignore some real business costs and can result in an incomplete picture of a company’s profitability. 19. Cash flows are more accurately measured with EBITDA and pro forma earnings. 20. The Z score model combines five financial ratios in a precise way to estimate a company’s default risk. Multiple-Choice Questions Select the best answer from those provided. 21. A type of analysis that helps identify similarities and differences across companies or business units at a single moment in time is a. trend analysis. b. common size statements. c. time-series analysis. d. cross-sectional analysis. 22. An analytical tool that measures a company’s performance against a predetermined standard is a/an a. benchmark comparison analysis. b. profitability analysis. c. time-series analysis. d. common size statement. 23. The financial statement reporting “filter” is a. SEC reporting regulations that vary from GAAP for publicly traded com- panies.
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This note was uploaded on 02/27/2012 for the course FIN 132 taught by Professor Afda during the Spring '12 term at Centenary College New Jersey.

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05-Financial Stratement Analysis - True-False 1....

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