Question 1

General standards or guidelines of comparisons include the 2 to 1 level for the current ratio and 1 to 1 level for the acid-test ratio.

Accepted Answer

The general standards or guidelines of comparisons do indeed include the 2 to 1 level for the current ratio and the 1 to 1 level for the acid-test ratio.

Question 2

Profitability is the ability to generate positive market expectations.

Accepted Answer

False

Question 3

Vertical analysis is the comparison of a company's financial condition and performance through time.

Accepted Answer

False

Question 4

A financial statement analysis report should include a brief table of contents to help users focus on those areas most relevant to their decisions.

Accepted Answer

A brief table of contents can serve as a helpful guide for users to navigate and locate the information they need for their decision-making purposes.

Question 5

Standards for comparison are necessary when making judgments about a company's financial performance.

Accepted Answer

Standards for comparison help provide context and a basis for evaluating a company's financial performance. Without them, it can be difficult to determine how well the company is doing relative to industry norms or past performance.

Question 6

Liquidity and efficiency are measures of a company's ability to meet short-term obligations.

Accepted Answer

Liquidity refers to a company's ability to convert its assets into cash quickly in order to meet short-term obligations. Efficiency, on the other hand, relates to a company's ability to use its resources (such as assets, labor, and capital) in an optimal way to generate profits and revenue. Both measures are important for a company's overall financial health and stability.

Question 7

A financial statement analysis report helps to reduce uncertainty in business decisions through a rigorous and sound evaluation.

Accepted Answer

A financial statement analysis report provides valuable insights into the financial health and performance of an organization, helping to reduce uncertainty and inform sound business decisions. By analyzing financial ratios, trends, and other key metrics, stakeholders can gain a better understanding of the risks and opportunities associated with a particular investment, and make more informed decisions as a result.

Question 8

Financial statement analysis can be used for personal investment decisions.

Accepted Answer

Financial statement analysis can provide valuable insights into the financial health and performance of a company, which can be useful when making investment decisions. However, it should be noted that personal investment decisions should also take into account other factors such as one's risk tolerance, investment objectives, and overall financial situation.

Question 9

Financial reporting includes not only general purpose financial statements, but also information from SEC filings, press releases, shareholders' meetings, forecasts, management letters, auditor's reports, and Webcasts.

Accepted Answer

Financial reporting includes all of the mentioned sources of information.

Question 10

If a company's activities include operations that are being discontinued, the income or loss from the discontinued operations are included on the income statement as part of income from continuing operations.

Accepted Answer

Income or loss from discontinued operations is presented separately from income from continuing operations on the income statement. The two figures are not combined.

Question 11

Measures taken from a selected competitor or a group of competitors are often excellent standards of comparison for analysis.

Accepted Answer

This statement is true as competitor analysis involves measuring and comparing the performance of one's own business with that of their competitors. Using a competitor or a group of competitors as a standard of comparison can help businesses identify their strengths and weaknesses, compare their market position and marketing strategies, and make informed decisions to improve their competitiveness.

Question 12

Market prospects are the ability to provide financial rewards sufficient to attract and retain financing.

Accepted Answer

The answer of Market prospects are the ability to provide...

Question 13

The evaluation of company performance and financial condition includes evaluation of (1) past and current performance, (2) current financial position, and (3) future performance and risk.

Accepted Answer

Evaluating the past and current performance, current financial position, and future performance and risk is a comprehensive approach to evaluating a company's performance and financial condition.

Question 14

For internal users, one purpose of financial statement analysis is to provide information helpful in improving the company's efficiency and effectiveness in providing products and services.

Accepted Answer

Financial statement analysis can provide valuable insights to internal users such as management and employees regarding the company's financial performance, strengths, and weaknesses. This information can be used to make decisions on how to allocate resources, improve processes, and streamline operations to increase efficiency and effectiveness in delivering products and services.

Question 15

Horizontal analysis is the comparison of a company's financial condition and performance to a base amount.

Accepted Answer

The answer of Horizontal analysis is the comparison of a...

Question 16

A company can change from one acceptable accounting principle to another as long as the change improves the usefulness of information in its financial statements.

Accepted Answer

According to Generally Accepted Accounting Principles (GAAP), a company can change accounting principles as long as the change results in more useful information being presented in the financial statements. However, the change must be disclosed and the cumulative effect of the change should be reported in the financial statements.

Question 17

Profitability is the company's ability to generate future revenues and meet long-term financial obligations.

Accepted Answer

The answer of Profitability is the company's ability to generate...

Question 18

Extraordinary items are reported in the operating section of the income statement.

Accepted Answer

Extraordinary items are reported separately in the income statement after the operating section and are not considered a part of regular operating activities.

Question 19

Financial statement analysis is the application of analytical tools to general-purpose financial statements and related data for making business decisions.

Accepted Answer

Financial statement analysis involves using various analytical tools to evaluate financial statements and related data in order to make informed business decisions.

Question 20

A good financial statement analysis report often includes the following sections: Executive summary, analysis overview, evidential matter, assumptions, key factors, and inferences.

Accepted Answer

An executive summary provides a brief overview of the financial statement analysis report, while the analysis overview section provides more details on the purpose, scope, and methodology used in the analysis. The evidential matter section presents the financial data used in the analysis, while the assumptions section outlines any assumptions made during the analysis. The key factors section highlights the main financial and non-financial factors that affect the performance of the company, while the inferences section draws conclusions based on the analysis.

Quiz 13: Interpreting Financial Statements