Reference no: EM133006672

QUESTIONS -

1. What is the objective of financial statement analysis?

2. What are some of the indications of satisfactory short-term solvency or working capital position of a business firm?

3. What are some of the tests of a sound or healthy long-term financial position?

4. Give some indications of managerial efficiency in the use of company resources.

5. What are the most commonly used techniques in the analysis and interpretation of financial statements?

6. What are the steps involved in using trend percentages in financial analysis?

7. Distinguish between horizontal and vertical analysis of financial statement data?

8. What is the basic objective in looking at trends in financial ratios and other data?

9. Define trend percentages?

10. Discuss the steps in analyzing financial statements using trend percentages.

11. In financial statement analysis, what is the basic objective of observing trends in data and ratios? Suggest some other standards of comparison.

12. Distinguish between trend percentages and component percentages. Which would be better suited for analyzing the change in sales over a term of several years?

13. NetssalesofthePremiereGeneralStorehavebeenincreasingatareasonable rate, but net income has been declining steadily as a percentage of these sales. What appears to be the problem?

14. Under what circumstances would you consider a corporate net income of P1million for the year as being unreasonably low? Under what circumstances would you consider a corporate profit of P1 million as being unreasonably high?

TRUE OR FALSE -

1. Financial analysis is primarily a matter of making relevant mechanical computations.

2. Percentage changes usually are computed by use of the amounts for the latest accounting period as a base.

3. The peso amount of change during an accounting period for an item appearing in financial statements is less significant than the change measured as percentage.

4. A business enterprise's earnings performance and its financial condition are the two primary concerns of the financial analyst.

5. An increase in sales volume generally is accompanied by a proportionate increase in net income.

6. On a common-size income statement, net income is given an equivalent of100%.

7. The peso amount of a change during a period in a certain item appearing in financial statements is probably less significant than the change measured as percentage.

8. Percentage changes are usually computed by using the latest figure as a base.

9. It is possible that a decrease in gross profit rate may be offset by a decrease in expenses, thus resulting in an increase in net income.

10. Industry standards tend to place the performance of a company in a more meaningful perspective.

MULTIPLE CHOICE -

1. The data from comparative financial statements are useful

a. To analyze changes in gross and net earnings over a number accounting periods

b. To analyze the sources of increase in assets

c. To indicate earnings trends and costs trends for the firm,

d. In accomplishing all of the above

e. In accomplishing (a) and (b) above

2. Index numbers are used in

a. trend analysis

b. ratio analysis

c. vertical analysis

d. common-size statements

3. "Trading on the equity"(financial leverage)is likely to be a good financial strategy for shareholders of corporations with:

a. Rapidly growing amounts of net income

b. Steady but low amounts of net income,

c. Widely fluctuating net income over a short period of time

d. Steadily declining amounts of net income,

4. Select one with the CORRECT statement

a. An industry with a low turnover if operating assets would be expected to have alowerrateoperatingpercentageofsalesthaninindustrywithhighoperating assets turnover

b. An increase in the rate of operating earnings as a percentage of sale may accompany a decrease in operating earnings measured in absolute pesos

c. The ratio of net earnings to sales is one of best measures for comparing the profitability of different companies without regard to the sources of assets

d. Net earnings as a percentage of sales measures the number of centavos of net earnings on each unit of product sold

5. Comparing performance with industry norms is complicated by

a. The existence of diversified companies

b. the use of different accounting procedures by different companies

c. the fact that companies in the same industry will usually differ in some respect

d. all of the above

6. Which of the following would probably not be found in a company's annual report?

a. The auditor's report

b. A five-or ten-year summary of operations

c. Interim financial statements

d. Analysis of the past year's operations

7. What is the first step in an analysis of financial statements?

a. Check the auditor's report

b. Check references containing financial information

c. Specify the objectives of the analysis

d. Do a common size analysis

8. What is a creditor's objective in performing an analysis of financial statements?

a. To decide whether the borrower has the ability to repay interest and principal on borrowed funds

b. To determine the firm's capital structure

c. To determine the company's future earnings system

d. To decide whether the firm has operated profitably in the past

9. What is an investor's objective in financial statement analysis?

a. To determine if the firm is risky

b. To determine the stability of earnings

c. To determine changes necessary to improve future performance,

d. To determine whether an investment is warranted by estimating company's future earnings

10. Which of the following is not a tool or technique used by a financial statement analyst?

a. Common size financial statements

b. Trend analysis

c. Random sampling analysis

d. Industry comparisons

11. In each of the past five years, the net sales of Beta Co. have increased at about half the rate of inflation, but net income has increased at approximately twice the rate of inflation. During this period, the company's total assets, liabilities and equity have remained almost unchanged; dividends are approximately equal to net income. These relationships suggest (indicate all correct answers):

a. Management is successfully controlling costs and expenses

b. The company is selling more merchandise every year

c. The annual return on assets has been increasing

d. Financing activities are likely to result in a net use of cash

12. Holly Corporation's net income was P400.000 in 2018 and P160, 000 in 2019.What percentage increase in net income must Holly achieve in 2020 to offset the decline in profits in2019?

a. 60% c. 600%

b. 150% d. 67%

13. In financial statement analysis, the most difficult of the following items to predict is whether:

a. The company's market share is increasing or declining

b. The company will be solvent in six months

c. Profits will increase in the coming year

d. The market price of share capital will rise or fall over the next months