Question 1

Basic EPS is calculated as net income minus _____________________________________________ divided by the weighted average number of shares outstanding.

Accepted Answer

dividends on preferred stock

Question 2

The second step in financial statement analysis is to identify the company strategy. Which of the following is a question an analyst should ask when performing a strategy analysis?

Accepted Answer

A)   Are industry sales growing rapidly or slowly?
B)   Do earnings include revenues that appear mismatched with the business model employed by the firm?
C)   Does the industry include a large number of firms selling similar products?
D)   What is the company's degree of geographical diversification? D

Question 3

The _____________________________________________ defines more clearly the explicit responsibility of managers for financial statements, the relation between the independent auditor and the firm audited and the kinds of services permitted and not permitted.

Accepted Answer

Sarbanes-Oxley Act of 2002

Question 4

Many people view the balance sheet as being a representation of a firm's economic position. What are some issues that reduce the quality of this representation?

Accepted Answer

The answer of Many people view the balance sheet as...

Question 5

The two categories of shareholders' equity usually found on the balance sheet of a corporation are

Accepted Answer

A)   contributed capital and property, plant, and equipment.
B)   retained earnings and notes payable.
C)   common stock and retained earnings.
D)   contributed capital and equity securities.

Question 6

The threat of new entrants is measured by whether there are entry barriers, such as capital investment, ________________________________________, patents, or regulation that inhibit new entrants.

Accepted Answer

The answer of The threat of new entrants is measured...

Question 7

Normally, intense rivalries have a tendency to reduce ____________________.

Accepted Answer

The answer of Normally, intense rivalries have a tendency to...

Question 8

Which of the following is not a characteristic of an extraordinary item?

Accepted Answer

A)   Material in amount.
B)   Nonrecurring.
C)   Unusual given the nature of the firm's activities.
D)   Requires a cash outflow.

Question 9

Many market participants argue that financial markets are efficient and that financial statement users cannot routinely analyze financial statements to find mispriced securities. This view would lead some to suggest that there is little value to financial statement analysis.
Required:
Provide a discussion of the role of financial statement analysis in an efficient capital market and reasons why financial statement analysis is still valuable.

Accepted Answer

The answer of Many market participants argue that financial markets...

Question 10

The accrual basis of accounting recognizes

Accepted Answer

A)   revenue when cash is received from customers
B)   expenses when paid
C)   revenue when all or a substantial portion is performed
D)   revenue when contracts are signed

Question 11

Prepare an analysis of the grocery industry using Porter's Five Forces framework. For each component force provide support for your conclusion. In addition, at the completion of your analysis provide a conclusion, along with support, of whether you expect the grocery industry to report high or low profitability in the near future.

Accepted Answer

The answer of Prepare an analysis of the grocery industry...

Question 12

All of the following are principal provisions of the Sarbanes-Oxley Act of 2002 except:

Accepted Answer

A)   At least one member of the audit committee of the board of directors must be a "financial expert."
B)   The lead audit or coordinating partner and the reviewing partner of the public accounting firm must rotate, or change, every five years.
C)   The firm's chief executive officer and the chief financial officer must issue a statement along with the audit report stating that the financial statements and notes fairly present the operations and financial position of the firm.
D)   The FASB has oversight and enforcement authority over the SEC.

Question 13

The fourth step in financial statement analysis is using the financial statements to analyze the current ____________________ and ____________________ of the firm.

Accepted Answer

The answer of The fourth step in financial statement analysis...

Question 14

What is the principal activity of security analysts?

Accepted Answer

A)   to assign credit ratings.
B)   to apply IFRS adjustments.
C)   to value firms.
D)   to assess the need for audits.

Question 15

What is an industry's value chain?

Accepted Answer

The answer of What is an industry's value chain?...

Question 16

Which SEC form may be the best place to start learning about the economics of an industry and the particular strategy a firm has selected for competing in the industry?

Accepted Answer

A)   Form 8-K
B)   Form 10-K
C)   Form MD&A
D)   Form FSAP

Question 17

Which financial statement would you look at to determine whether a company will be able to pay for the goods when payment is due in 30 days?

Accepted Answer

A)   statement of cash flows.
B)   statement of stockholders' equity.
C)   income statement.
D)   balance sheet.

Question 18

Under the Sarbanes-Oxley Act ____________________ assumes responsibility for establishing and maintaining adequate internal control structure and procedures.

Accepted Answer

The answer of Under the Sarbanes-Oxley Act ____________________ assumes responsibility...

Question 19

Resources that have the potential for providing a firm with future economic benefits are called ____________________.

Accepted Answer

The answer of Resources that have the potential for providing...

Question 20

Which of the following economic characteristics is consistent with a commercial bank?

Accepted Answer

A)   Low barriers to entry.
B)   High levels of research and development.
C)   Low profit margin on lending activities.
D)   Low profit margin on fee-based financial services, such as merger consulting.

Exam 1: Overview of Financial Reporting, Financial Statement Analysis, and Valuation