Pretest 1 Overview Financial Analysis

Which of the financial statement that provides a snapshot of the financial condition of the firm at a particular time (point in time)?

• The statement of financial position

• The income statements

• The statement of cash flows

• None of the above

Which of the financial statement that shows the cash flow generated by the firm's operations, investments and financial activities?

• The statement of financial position

• The income statements

• The statement of cash flows

• The auditor's statement of financial condition

Comparability problems arise because…

• Firms may use different generally accepted accounting principles

• Inflation may not affect firms differently due to accounting conventions used

• Financial analysts do not know how to compare financial statements

• No correct answer

One problem with comparing financial ratios prepared by different reporting agencies is

• some agencies receive financial information later than others

• agencies vary in their policies as to what is included in specific calculations

• some agencies are careless in their reporting

• some firms are more conservative in their accounting practices

Fundamental analysis uses...

• earnings and dividends prospects

• relative strength

• price momentum

• none of the above

To create a common size income statement, you have to… all items on the income statement by …

• multiply; net income

• multiply; total revenue

• divide; net income

• divide; total revenue

To create a common size balance sheet, you have to… all items on the balance sheet by …

• multiply; owners’ equity

• multiply; total assets

• divide; owners’ equity

• divide; total assets

Common size financial statements make it easier to compare firms...

• of different sizes

• in different industries

• with different degree of leverage

• that use different inventory valuation methods (FIFO vs. LIFO)

Which of the following is not a common tool used in financial statement analysis?

• Random walk analysis

• Ratio analysis

• Common size statement analysis

• Trend series analysis

If a firm has "goodwill" recorded on its balance sheet it must have...

• donated to charity

• participated in a benefit for a charitable cause

• participated in a company-wide fund-raising drive for a charity

• acquired another firm