Question 1

When attempting to identify the economic characteristics of the industry in which a particular firm participates an analyst might ask which of the following questions?

Accepted Answer

A)  Does technological change play an important role in the firm maintaining a competitive advantage? 
B)  Has the firm diversified across several geographic markets? 
C)  Has the firm recognized revenues at the proper time? 
D)  Has the firm structured transactions to make it look more profitable than economic conditions suggest?

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?

Question 3

What is comprehensive income?

Accepted Answer

The answer of What is comprehensive income?...

Question 4

How easily can customers switch to substitute products is a question one might ask when assessing the ___________________________________.

Accepted Answer

The answer of How easily can customers switch to substitute...

Question 5

When assessing buyer power using Porter's five forces,which of the following is not consistent with low buyer power?

Accepted Answer

A)  Brand loyalty 
B)  Control of distribution channel 
C)  Large number of suppliers 
D)  Low price

Question 6

Assets that do not represent a claim to a fixed amount of cash are called ____________________ assets.

Accepted Answer

The answer of Assets that do not represent a claim...

Question 7

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 8

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 9

Which of the following would not inhibit new entrants into a market?

Accepted Answer

A)  Existing technological expertise. 
B)  Large required capital investment. 
C)  Lack of rivalry among current participants. 
D)  Existing patented technology.

Question 10

Assets for a particular business might include

Accepted Answer

A)  cash, retained earnings, and accounts payable. 
B)  cash, common shareholders' equity, and accounts receivable. 
C)  cash, property, plant, and equipment, and accumulated other comprehensive income. 
D)  cash, inventories, and goodwill.

Question 11

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 12

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 13

Normally,intense rivalries have a tendency to reduce ____________________.

Accepted Answer

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

Question 14

Which of the following is a question an analyst would ask when assessing the quality of a firm's financial statements?

Accepted Answer

A)  Are the company's products designed to meet a specific market segment? 
B)  Has the firm integrated forward into retailing to final consumers? 
C)  Is the firm diversified across several geographical markets? 
D)  Do earnings include nonrecurring gains or losses?

Question 15

Another important step in financial statement analysis is to assess the quality of a firm's ________________________________________ and if necessary adjust them for such characteristics as sustainability or comparability.

Accepted Answer

The answer of Another important step in financial statement analysis...

Question 16

Statements that express all items in a particular financial statement as a percentage of some common base are called _________________________ statements.

Accepted Answer

The answer of Statements that express all items in a...

Question 17

On a common size basis,which of the following assets is normally largest for a electric utility?

Accepted Answer

A)  Accounts receivable 
B)  Inventory 
C)  Property, Plant and Equipment 
D)  Cash and Marketable Securities

Question 18

Net income is equal to:

Accepted Answer

A)  Assets minus Liabilities 
B)  Revenues and Gains minus Expenses and Losses 
C)  Shareholders' Equity minus Assets 
D)  Revenues and Assets minus Expenses and Liabilities

Question 19

____________________ assets include the rights established by law or contract to the future use of property.

Accepted Answer

The answer of ____________________ assets include the rights established by...

Question 20

Comparative financial statement data for Donovan Company and Maltese Company,two competitors in the same industry,appear below.All balance sheet data are as of December 31,2012,and December 31,2011.
  REQUIRED:
(a)Prepare a common-size 2012 income statement using the data for Donovan Company and Maltese Company in columnar form.
(b)Comment on the relative profitability of the companies by computing the return on assets (Net income/(Average total assets)and the return on total equity (Net income / (Average Shareholders' Equity)ratios for both companies.

Accepted Answer

The answer of Comparative financial statement data for Donovan Company...

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