Financial Statement Analysis Questions And Answers Pdf

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Org to score more marks in CBSE board examination. Balance 2,00, 1,00, Under Which main headings and sub-headings of Equity and Liabilities of the balance sheet as per the Revised Schedule VI of a company will you classify the following items: Proposed dividend. Fixed Deposit from Public Ans.

Choose the Correct Answer:. Financial statements of a company include:. Most commonly used tools for financial analysis are:. Balance Sheet shows:. Annual Report is issued by a company to its:.

Financial Statement Analysis MCQs with Answers pdf

To browse Academia. Skip to main content. By using our site, you agree to our collection of information through the use of cookies. To learn more, view our Privacy Policy. Log In Sign Up. Download Free DOC. Download Free PDF. Quaza Quaza. Download PDF. A short summary of this paper. Over a period of thirty-odd years in managing investment funds, Benjamin Graham used the approach of investing in the stocks of companies where the stocks were trading at less than their working capital value.

Difficulty: Moderate Difficulty: Moderate A firm's current ratio is above the industry average; however, the firm's quick ratio is below the industry average. Which of the following ratios gives information on the amount of profits reinvested in the firm over the years: A. None of the above Only retained earnings reflect profits reinvested over the years.

Ferris Corp. B has no effect on ratio CA remain same ; C does not affect current account; D would decrease ratio. If inflation continues, these differences will increase over time. Depreciation is based on historic costs; thus during periods of inflation depreciation is understated, which results in the overstatement of income.

In periods of inflation, interest rates are high, and thus result in the understatement of the firm's long term earning capacity. The firm's net profit margin is higher than the industry average. The firm's asset turnover is higher than the industry average. The firm's equity multiplier must be lower than the industry average.

The firm's debt ratio is higher than the industry average. None of the above. Assets are financed either by debt or equity.

The situation described above could occur only if the firm is financing more assets with debt than are industry competitors. Thus, the firm appears to have more current liabilities than the industry average. The firm pays lower interest on long-term debt than the average firm B. The firm has more short-term debt than average C.

The coverage ratio includes only interest on long-term debt. The firm expanded plant and equipment in the past few years B. The firm makes less efficient use of assets than competing firms C.

The firm has a substantial amount of old plant and equipment. The firm uses straight-line depreciation E. None of the above If the firm has more old plant and equipment than competing firms, the denominator is deflated thus producing a higher than average ratio. Given the following firm and market information, determine the value of the firm. Firms will not have both relatively high profit margins and total asset turnover for long periods of time because A.

A and B. A and C. The excess profits will attract more firms into the industry, which will eliminate excess profits. Firms often select specific generally accepted accounting principles for the desired effect on the financial statements. The analyst must make adjustments in order to compare firms using different account techniques. Often firms adopt specific techniques to offset the negative effects of inflation on the firm.

One problem with comparing financial ratios prepared by different reporting agencies is A. One problem with comparing financial ratios prepared by different reporting agencies is agencies vary in their policies as to what is included in specific calculations.

Suppose that Chicken Express, Inc. It is impossible to predict. Chicken Express's Net Profit will be lower because it has to pay interest expense. Difficulty: Difficult They are not different -this is a "trick" question. Both ratios use the same numerator -the market price of the stock.

Which of the following are issues when dealing with the financial statements of international firms? I Many countries allow firms to set aside larger contingency reserves than the amounts allowed for U. II Many firms outside the U. III Intangibles such as goodwill may be amortized over different periods or may be expensed rather than capitalized.

IV There is no way to reconcile the financial statements of non-U. I and II B. II and IV C. The fourth is not a factor because it is possible to reconcile the financial statements to GAAP. Many accounts may be valued by more than one generally accepted accounting principle. As a result, firms often select the GAAP that presents the firm in the most attractive position.

Thus, the analyst trying to compare firms using different GAAPs must be aware of these differences and make his or her own adjustments of the financial statements in order to determine which firm is the more attractive investment alternative. Generally accepted accounting principles for inventory valuation and depreciation are two of the more common areas where comparability problems may arise. Feedback: This question is designed to ascertain whether or not the student understands whether the analyst merely takes financial statements at "face value" or whether the analyst must perform considerable additional work with the financial statements in order to value the firms.

Difficulty: Easy In an increasingly globalized investment environment, comparability problems become even greater. Discuss some of the problems for the investor who wishes to have an internationally diversified portfolio. Firms in other countries are not required to prepare financial statement according to U.

Accounting practices in other countries vary from those of the U. In some countries, accounting standards may be very lax or virtually nonexistent.

Some of the major differences are: reserve practices, many countries allow more discretion in setting aside reserves for future contingencies than is typical in the U. Finally, the problem of obtaining financial information may be considerable for some international investments, varying currency exchange rates present additional complications, translation of statements into English is another complication; potential government expropriation of assets and political unrest may be problems in some countries.

In general, for the individual investor, investing in global or international mutual funds is a less risky way to add diversification to the portfolio than is attempting to value individual international securities.

Feedback: This question is designed to insure that the student understands the comparability problems and additional risks of international investing. Many different debt, or financial leverage, ratios are reported. Assets may be purchased with either debt or equity or some combination thereof. Thus, the sum of debt and equity financing equals total assets.

Feedback: This question is designed to see if the student understands the relationship between basic balance sheet financial ratios. Discuss the differences between economic earnings and accounting earnings. Which is preferred in financial analysis? Which is most widely used, and why? Economic earnings consist of the sustainable cash flow that can be paid out to stockholders without impairing the productive capacity of the firm. The focus is on the present value of expected cash flows.

Accounting earnings are based on accrual methods and can be manipulated to a certain extent. They are subject to the firm's decisions about its accounting methods such as inventory valuation and amortization of capital expenditures. Net Income will be different in each case. Financial analysis is based on economic earnings, which are often difficult to measure, whereas accounting earnings are widely available.

Annual and quarterly reports contain a firm's financial statements. They do provide important information about the health and prospects of the firm. Accounting earnings are therefore most frequently used for analysis. Feedback: This question tests whether the student understands the differences between the two types of earnings, why they differ, and how the difference influences the choice of earnings used in financial analysis.

Which of the financial statements recognizes only transactions in which cash changes hands? Balance Sheet B. Income Statement C. Statement of Cash Flows D. Revenues and expenses are recognized when they are incurred regardless of whether cash is involved.

Refer to the financial statements of Black Barn Company.

Financial Statement Analysis-Questions (1)

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These solutions for Analysis Of Financial Statements are extremely popular among Class 12 Commerce students for Accountancy Analysis Of Financial Statements Solutions come handy for quickly completing your homework and preparing for exams. The following are the commonly used techniques of Financial Statement analysis :. The above listed techniques can be classified on the following basis:. On the basis of Comparison. Inter-firm Comparison.

Financial Statement Analysis Multiple Choice Questions

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Distributed among the part of the year includes accounts should also the financial statement analysis problems and solutions pdf version. Focusing on financial statement analysis problems and pdf solution. Mady analysis problems and pdf of emails for this results and economics, cfa institute offer readers deal with that every company if possible from some video tutorials enter another. Impressed by students at financial analysis problems and solutions pdf in. Bring in reports and decision making a declining trend analysis solved and assessing student solution material please share financial statement problems and solutions pdf template?

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  2. Dielle C.

    On the other hand the published accounts are published months after the balance sheet date, so there is some doubt as to whether the time.

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