Question 1

The best source of information about a particular company is Standard & Poor's industry guide.

Accepted Answer

While Standard & Poor's industry guide can provide some useful information, it is not necessarily the best or only source of information about a particular company. Other sources, such as the company's own financial statements and reports, news articles, and analyst research reports, may also be important sources of information.

Question 2

____________________ refers to the likelihood that a company will be able to pay its current obligations as they come due.

Accepted Answer

The answer of ____________________ refers to the likelihood that a...

Question 3

Investors who buy stock in a corporation expect to earn returns on their investment from dividends and an increase in the value of the stock (a capital gain).

Accepted Answer

This is a basic principle of investing in stocks. Investors expect to earn returns in the form of dividends and an increase in the stock's value, which can result in a capital gain when sold.

Question 4

When trying to predict future profits, analysts often take a top-down approach which starts with gathering economic and industry data to supplement what they are able to find out about the specific corporations they follow.

Accepted Answer

This statement is true. Analysts often start with gathering data on the broader economy and industry before analyzing specific corporations to predict future profits.

Question 5

In ____________________ analysis, each financial statement line item is expressed as a percent of a base year, which is typically the earliest year shown.

Accepted Answer

The answer of In ____________________ analysis, each financial statement line...

Question 6

Form 8-K is the "current report^" companies must file with the SEC to announce major events that are important to investors and creditors.

Accepted Answer

Form 8-K is the current report that companies must file with the SEC to announce major events that are important to investors and creditors.

Question 7

In ____________________ analysis, each financial statement line item is expressed as a percent of the largest amount on the statement, which is net sales for the income statement and total assets for balance sheet.

Accepted Answer

The answer of In ____________________ analysis, each financial statement line...

Question 8

A company that is considering selling goods or providing services to another company wants to know whether its customers will provide: competitive salary and benefits; experiences that will prepare employees to assume increased responsibility; and a secure job for the foreseeable future.

Accepted Answer

The statements listed in the question are what the company providing the goods or services would want from their potential customers. The company's customers would not be expected to provide competitive salary and benefits or job security, as they are not the employer of the company's employees.

Question 9

____________________ statements highlight differences by expressing each financial statement item in percentage terms.

Accepted Answer

The answer of ____________________ statements highlight differences by expressing each...

Question 10

____________________ analysis compares a single corporation across time.

Accepted Answer

The answer of ____________________ analysis compares a single corporation across...

Question 11

A company with a capital structure that shifts more toward debt financing will appear to be in a stronger position to pay interest and any principal amount that may be maturing by using its cash flows generated by operating activities.

Accepted Answer

Increasing debt in a company's capital structure increases the financial risk due to the obligation to pay interest and principal, potentially straining the company's cash flows if operating activities do not generate sufficient funds.

Question 12

Public companies file their annual reports on Form ____________________.

Accepted Answer

The answer of Public companies file their annual reports on...

Question 13

The three aspects of return on equity (ROE) recognized by DuPont analysis are the net profit margin percentage, the ____________________ ratio, and leverage.

Accepted Answer

The answer of The three aspects of return on equity...

Question 14

Public companies file their quarterly reports on Form ____________________.

Accepted Answer

The answer of Public companies file their quarterly reports on...

Question 15

Riverdale Drugs has an inventory turnover ratio of 15 times while RJ's Drugs has an inventory turnover of 14 times. RJ's is less efficient in managing its inventory.

Accepted Answer

A higher inventory turnover ratio indicates more efficiency in managing inventory, as it shows that a company is selling and restocking its goods more frequently. Therefore, with Riverdale Drugs having a higher turnover ratio than RJ's Drugs, RJ's is less efficient in managing its inventory.

Question 16

____________________ analysis compares one corporation to another corporation and to industry averages.

Accepted Answer

The answer of ____________________ analysis compares one corporation to another...

Question 17

Trend analysis is another name for ____________________ analysis.

Accepted Answer

The answer of Trend analysis is another name for ____________________...

Question 18

Liquidity refers to a company's ability to pay its current obligations when they come due.

Accepted Answer

Liquidity refers to a company's ability to meet its short-term obligations, such as paying bills and debt payments, with its current assets or by quickly converting assets to cash.

Question 19

Many companies assist the users of the financial statements by providing information about the company's accounting policy choices in the first note to the financial statements.

Accepted Answer

It is common practice for companies to disclose their accounting policy choices and other significant accounting estimates in the notes to the financial statements. This helps users of the financial statements to understand how the financial information has been prepared and to make informed decisions based on that information.

Question 20

As a general rule, all users of financial statements seek answers to the same questions.

Accepted Answer

Different users of financial statements have varied interests and seek answers to different questions based on their specific needs. For example, investors might focus on profitability and return on investment, creditors may be more concerned with liquidity and solvency, and management might look for information on operational efficiency and market position.

Quiz 12: Financial Statement Analysis