Question 1

All of the following are true regarding projected financial statements except :

Accepted Answer

A)  The statement of cash flows is the most critical forecast since it reflects profitability rather than viability. 
B)  Preparing projected financial statements must incorporate a company's past performance records. 
C)  Preparing projected financial statements must incorporate a company's current performance records. 
D)  The income statement demonstrates immediate capability to service debt for banks or real potential for growth in returns for venture capital. 
A)  The statement of cash flows is the most critical forecast since it reflects profitability rather than viability. 
B)  Preparing projected financial statements must incorporate a company's past performance records. 
C)  Preparing projected financial statements must incorporate a company's current performance records. 
D)  The income statement demonstrates immediate capability to service debt for banks or real potential for growth in returns for venture capital.

Question 2

An analyst using the inventory turnover ratio to calculate future levels of inventory may face the problem that:

Accepted Answer

A)  the method reduces the potential understatement inherent in average balances. 
B)  the method can introduce artificial volatility in ending balances. 
C)  the method results in understating inventory each year. 
D)  the method results in overstating inventory each year. 
A)  the method reduces the potential understatement inherent in average balances. 
B)  the method can introduce artificial volatility in ending balances. 
C)  the method results in understating inventory each year. 
D)  the method results in overstating inventory each year.

Question 3

Common-size financial statements recast each statement item as:

Accepted Answer

A)  a percentage of the "bottom line." 
B)  a percentage using industry averages for the "base number." 
C)  a percentage using a base year number for each line item. 
D)  a percentage of some "base number" on the financial statement in question. 
A)  a percentage of the "bottom line." 
B)  a percentage using industry averages for the "base number." 
C)  a percentage using a base year number for each line item. 
D)  a percentage of some "base number" on the financial statement in question.

Question 4

Using common-size balance sheet percentages to project individual assets, liabilities, or shareholders' equity has all of the following shortcomings except :

Accepted Answer

A)  Individual assets, liabilities, and shareholders' equity are not independent of each other. 
B)  If a company experiences changing proportions for investments in securities among its assets, other asset categories may show decreasing percentages in some years even though their dollar amounts are increasing. 
C)  Individual assets, liabilities, and shareholders' equity are independent of each other. 
D)  The common-size percentages do not permit the analyst to easily change the assumptions about the future behavior of an individual asset or liability. 
A)  Individual assets, liabilities, and shareholders' equity are not independent of each other. 
B)  If a company experiences changing proportions for investments in securities among its assets, other asset categories may show decreasing percentages in some years even though their dollar amounts are increasing. 
C)  Individual assets, liabilities, and shareholders' equity are independent of each other. 
D)  The common-size percentages do not permit the analyst to easily change the assumptions about the future behavior of an individual asset or liability.

Question 5

All of the following are the fundamental bases for future payoffs to equity shareholders and share value except :

Accepted Answer

A)  earnings 
B)  cash flows 
C)  dividends 
D)  depreciation 
A)  earnings 
B)  cash flows 
C)  dividends 
D)  depreciation

Question 6

Sparky's
Sparky's sells auto parts. Provided below is selected financial information from the company's 2012 annual report:
  Using Sparky's financial information what is the company's inventory turnover ratio for 2012?

Accepted Answer

A)  0.69 
B)  1.00 
C)  3.35 
D)  4.03 
A)  0.69 
B)  1.00 
C)  3.35 
D)  4.03

Question 7

As an analyst it is important when projecting sales to make estimates about future changes in sales volume. Compare how you might make estimates about future sales value for a company in a mature industry and one in a rapidly growing industry.

Accepted Answer

Suggested Solution from the text:
For a

Question 8

Financial statement forecasts rely on additivity within financial statements and articulation across financial statements. Given this information sales growth forecasts will most likely affect growth in:

Accepted Answer

A)  accounts receivables. 
B)  accounts payable. 
C)  depreciation. 
D)  salary payable. 
A)  accounts receivables. 
B)  accounts payable. 
C)  depreciation. 
D)  salary payable.

Question 9

All of the following statements are true regarding ratios and forecasts except :

Accepted Answer

A)  Ratios cannot confirm whether forecast assumptions will turn out to be correct. 
B)  Ratios can tell whether future sales growth was accurately captured. 
C)  Ratios cannot tell whether assumptions about future cash flows are realistic. 
D)  Ratios can tell whether growth rates for sales are consistent with past sales growth performance. 
A)  Ratios cannot confirm whether forecast assumptions will turn out to be correct. 
B)  Ratios can tell whether future sales growth was accurately captured. 
C)  Ratios cannot tell whether assumptions about future cash flows are realistic. 
D)  Ratios can tell whether growth rates for sales are consistent with past sales growth performance.

Question 10

In comparison of 2010 to 2009 performance, Watson Company's inventory turnover decreased substantially, although sales and inventory amounts were essentially unchanged.
Required:
During a corporate meeting you heard the following managers postulate why the decreased inventory turnover ratio happened. Which statement best explains the decreased inventory turnover ratio and why?
a. The marketing manager said: The decreased inventory turnover ratio is due to an increase in the cost of goods sold.
b. The operations manager said: The decreased inventory turnover ratio is due to increased gross profit percentage.
c. The credit manager said: The decreased inventory turnover ratio is due to a decrease in the accounts receivable turnover.
d. The shipping manager said: The decreased inventory turnover ratio is due to inventory being shipped FOB destination point that keeps those items in inventory until they reach the purchasers warehouse.

Accepted Answer

The operations manager's statement (b) b

Question 11

Realistic expectations are ____________________ and ____________________.

Accepted Answer

unbiased,

Question 12

Projected financial statements can be used to assess the sensitivity of all of the following except :

Accepted Answer

A)  a firm's liquidity. 
B)  a firm's leverage to changes in assumptions. 
C)  conditions under which the firm's debt covenants may become binding. 
D)  unusual patterns for projected total assets. 
A)  a firm's liquidity. 
B)  a firm's leverage to changes in assumptions. 
C)  conditions under which the firm's debt covenants may become binding. 
D)  unusual patterns for projected total assets.

Question 13

The first step in the forecasting game plan is to project sales and other operating activities. Sales numbers are determined by both a volume component and price component. Projecting prices depends on factors specific to the firm and its industry that might affect demand and price elasticity. For the following types of firms, discuss whether it would be likely that the firm would be able to raise future prices:
a. A firm in a capital-intensive industry that is expected to operate near capacity for the near future.
b. A firm in an industry that is expected to experience numerous technological improvements.
c. A firm with products that are transitioning from the growth to maturity phase of the product life cycle.
d. A firm that has established a well-known brand name and image.

Accepted Answer

Suggested answers:
a. In this case, due

Question 14

A firm in a mature industry with little expected change in its market share might anticipate volume increases equal to the growth rate in the _________________________ within its geographic markets.

Accepted Answer

The answer of A firm in a mature industry with...

Question 15

Financial statement forecasts are important analysis tools because forecasts of ______________________________ play a central role in valuation and many other financial decision contexts.

Accepted Answer

The answer of Financial statement forecasts are important analysis tools...

Question 16

A firm in transition from the high growth to the mature phase of its life cycle, or a firm with significant technological improvements in its production processes, might expect increases in ______________________________ but decreases in sales prices per unit.

Accepted Answer

The answer of A firm in transition from the high...

Question 17

For some types of assets, such as accounts receivable, asset growth typically ____________________ future sales growth.

Accepted Answer

The answer of For some types of assets, such as...

Question 18

If a company has very low operating leverage (i.e., a low proportion of fixed costs in the cost structure) and no changes are expected in operations:

Accepted Answer

A)  percentage change income statement percentages can serve as the basis for projecting operating expenses. 
B)  using common-size income statement percentages will overstate future projected operating expenses. 
C)  using common-size income statement percentages will understate future projected operating expenses. 
D)  using common-size income statement percentages can serve as a reasonable basis for projecting future operating expenses. 
A)  percentage change income statement percentages can serve as the basis for projecting operating expenses. 
B)  using common-size income statement percentages will overstate future projected operating expenses. 
C)  using common-size income statement percentages will understate future projected operating expenses. 
D)  using common-size income statement percentages can serve as a reasonable basis for projecting future operating expenses.

Question 19

Projecting sales price changes depends on factors specific to the firm and its industry that might affect demand and price elasticity. Which of the following types of companies would most likely be able to increase prices?

Accepted Answer

A)  A firm in a capital intensive industry that is expected to operate near capacity for the near future. 
B)  A firm in a capital intensive industry in which excess capacity exists. 
C)  A firm operating in an industry that is expected to experience technological improvements in its production process. 
D)  A firm operating in an industry that is transitioning from the high growth to the maturity phase of its life cycle. 
A)  A firm in a capital intensive industry that is expected to operate near capacity for the near future. 
B)  A firm in a capital intensive industry in which excess capacity exists. 
C)  A firm operating in an industry that is expected to experience technological improvements in its production process. 
D)  A firm operating in an industry that is transitioning from the high growth to the maturity phase of its life cycle.

Question 20

Firms that have differentiated ___________________________________ for its products may have a greater potential to increase prices.

Accepted Answer

unique cha

All of the following are true regarding projected financial statements except :

An analyst using the inventory turnover ratio to calculate future levels of inventory may face the problem that:

Common-size financial statements recast each statement item as:

Using common-size balance sheet percentages to project individual assets, liabilities, or shareholders' equity has all of the following shortcomings except :

All of the following are the fundamental bases for future payoffs to equity shareholders and share value except :

Sparky's Sparky's sells auto parts. Provided below is selected financial information from the company's 2012 annual report: Using Sparky's financial information what is the company's inventory turnover ratio for 2012?

As an analyst it is important when projecting sales to make estimates about future changes in sales volume. Compare how you might make estimates about future sales value for a company in a mature industry and one in a rapidly growing industry.

Financial statement forecasts rely on additivity within financial statements and articulation across financial statements. Given this information sales growth forecasts will most likely affect growth in:

All of the following statements are true regarding ratios and forecasts except :

Realistic expectations are and .

Projected financial statements can be used to assess the sensitivity of all of the following except :

A firm in a mature industry with little expected change in its market share might anticipate volume increases equal to the growth rate in the _________________________ within its geographic markets.

Financial statement forecasts are important analysis tools because forecasts of ______________________________ play a central role in valuation and many other financial decision contexts.

A firm in transition from the high growth to the mature phase of its life cycle, or a firm with significant technological improvements in its production processes, might expect increases in ______________________________ but decreases in sales prices per unit.

For some types of assets, such as accounts receivable, asset growth typically ____________________ future sales growth.

If a company has very low operating leverage (i.e., a low proportion of fixed costs in the cost structure) and no changes are expected in operations:

Projecting sales price changes depends on factors specific to the firm and its industry that might affect demand and price elasticity. Which of the following types of companies would most likely be able to increase prices?

Firms that have differentiated ___________________________________ for its products may have a greater potential to increase prices.

Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Recognition

Income Flows Versus Cash Flows: Understanding the Statement of Cash Flows

Profitability Analysis

Risk Analysis

Financing Activities

Investing Activities

Operating Activities

Accounting Quality

Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Valuation: Cash-Flow Based Approaches

Valuation: Earnings-Based Approaches

Valuation: Market-Based Approaches

Filters

Exam 10: Forecasting Financial Statements

All of the following are true regarding projected financial statements except :

An analyst using the inventory turnover ratio to calculate future levels of inventory may face the problem that:

Common-size financial statements recast each statement item as:

Using common-size balance sheet percentages to project individual assets, liabilities, or shareholders' equity has all of the following shortcomings except :

All of the following are the fundamental bases for future payoffs to equity shareholders and share value except :

Sparky's Sparky's sells auto parts. Provided below is selected financial information from the company's 2012 annual report: Using Sparky's financial information what is the company's inventory turnover ratio for 2012?

As an analyst it is important when projecting sales to make estimates about future changes in sales volume. Compare how you might make estimates about future sales value for a company in a mature industry and one in a rapidly growing industry.

Financial statement forecasts rely on additivity within financial statements and articulation across financial statements. Given this information sales growth forecasts will most likely affect growth in:

All of the following statements are true regarding ratios and forecasts except :

Realistic expectations are ____________________ and ____________________.

Projected financial statements can be used to assess the sensitivity of all of the following except :

A firm in a mature industry with little expected change in its market share might anticipate volume increases equal to the growth rate in the _________________________ within its geographic markets.

Financial statement forecasts are important analysis tools because forecasts of ______________________________ play a central role in valuation and many other financial decision contexts.

A firm in transition from the high growth to the mature phase of its life cycle, or a firm with significant technological improvements in its production processes, might expect increases in ______________________________ but decreases in sales prices per unit.

For some types of assets, such as accounts receivable, asset growth typically ____________________ future sales growth.

If a company has very low operating leverage (i.e., a low proportion of fixed costs in the cost structure) and no changes are expected in operations:

Projecting sales price changes depends on factors specific to the firm and its industry that might affect demand and price elasticity. Which of the following types of companies would most likely be able to increase prices?

Firms that have differentiated ___________________________________ for its products may have a greater potential to increase prices.

Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Recognition

Income Flows Versus Cash Flows: Understanding the Statement of Cash Flows

Profitability Analysis

Risk Analysis

Financing Activities

Investing Activities

Operating Activities

Accounting Quality

Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Valuation: Cash-Flow Based Approaches

Valuation: Earnings-Based Approaches

Valuation: Market-Based Approaches

Filters

Realistic expectations are and .