Financial Statement Analysis-Questions

Financial Statement Analysis & Control 1 - Financial Statement Analysis-Questions introduction. Describe some of the analytical uses to which financial statement analysis can be put. 2. What are the sources of financial information? 3. Who are the users of financial statements? 4. What are the objectives of financial statements? 5. What are the limitations of financial statement analysis? 6. Discuss the need for comparative analysis. 7. Identify the tools of financial statement analysis. 8. Explain and apply the horizontal analysis. 9. Identify and compute ratios used in applying a firm’s liquidity, profitability and solvency. 0. Why are the information needs of equity investors among the most demanding of all users of financial statement? 11. Differentiate between systematic risk and unsystematic risk and discuss the various components of latter. 12. Discuss the Capital Asset Pricing Model (CAPM) and explain how it deals with the problem of securities valuation of the market. 13. Explain how the Efficient Market Hypothesis (EMH) deals with the reaction of the market prices to the financial and other data. 14. Explain the concept of the trade-off between risk and return as well as its significance to portfolio construction. 15.

Discuss the implications that the CAPM and EMH present for financial statement analysis. 16. What uses can the management of an enterprise make of financial statement analysis? 17. What is financial statement analysis? 18. Describe the major foundations of financial statement analysis discipline. 19. Why are financial statements important to the decision making process in financial analysis? 20. Discuss the relative importance of financial statement analysis in the total decisions report. 21. How useful is a comparative financial analysis? How do you make useful comparison? 22. Give four broad categories of analysis tools. 23.

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Is the trend of the past a good predictor of the future? Give reasons for your argument. 24. Which is the better indicator of significant change-the absolute amount of change or the change in percentage? Why? 25. What are the some of the criteria to be used in picking out a base year in an index number comparative analysis? 26. What information can be obtained from trend analysis? 27. What is a common size financial statement? How do you prepare one? 28. What does a common size financial statement tell about an enterprise? 29. Do all ratios have significance? Explain. 30. What are some of the limitations of ratio analysis? 1. Give five ratios that can be prepared by the use of balance sheet figures only. 32. Give five ratios that can be prepared by the use of income statement figures only. 33. Give seven ratios that required data from both the balance sheet and the income statement figures only. 34. Give four examples of special purpose analytical tools commonly utilized by the financial analyst. 35. What are the steps generally taken by the financial analyst in his work? What does this step achieve? 36. Identify and explain two significant limitations associated with ratio analysis of financial statements. 7. What are the some of the principal uses of computers in investment analysis? 38. What are the most important limitations or disadvantages to the application of computers to security analysis? 39. What type of information can the user of financial statements obtained from the statement of cash flow? 40. What are the purposes of a statement of cash flows? 41. Describe the three major activities into which the statement of cash flows is classified. 42. Describe the three categories of adjustments which convert net income to cash flow from operating activities. 43.

Describe the two methods of determining cash flow from operating activities. 44. Contrast the functions of income statement with that of cash flow from operating activities. 45. Describe the computation of free cash flows. What is the significance of this measure? 46. List some clues which the statement of cash flows can provide to the financial analyst? 47. Discuss the analytical significance of the statement of cash flows and the considerations which enter into the interpretation of the cash from operations measure. 48. What is meant by the term cash flow? Why is the term subject to confusion and mispresentation? 9. What are the cash equivalents and why are they included with cash on a statement of cash flows? 50. What are the three major sections on a statement of cash flows and what are the general rules that determine the transactions that should be included in each section? 51. How did the direct and indirect methods differ in their approach to computing the net cash provided by operating activities? 52. During the current year, a company declared and paid a $90,000 cash dividend and a 10% stock dividend. How will these two items be treated on the current year’s statement of cash flows? 53.

A business executive once stated,” Depreciation is one of the biggest sources of cash”-Do you agree that depreciation is a source of cash? Explain. 54. Would a sale of equipment for cash be considered a financing activities or an investing activity? Why? 55. Does the statement of cash flows or an income statement best measure the profitability of a financially sound business? Explain. 56. What are the two components of the sales volume variances? 57. What are the two components of the sales quantity variances? 58. Show how managers can gain insight into the causes of a sales volume variance by subdividing the components of this variance. 9. How can the concept of a composite unit be used to explain why a unfavorable total sales mix variance of contribution margin occurs? 60. Explain why a favorable sales quantity variance occurs. 61. Distinguish between a market-share variance and market size variance. 62. Why might some companies not compute market size and market share variances? 63. Explain how the direct materials mix and yield variances provide additional information about the direct materials efficiency variance. 64. Discuss the importance of stock market. 65. Describe the relation of the stock market to the modern financial system. 6. What are the three steps in investment decisions – top-down approach? 67. What are the ten steps to choosing the best investment? 68. What are the difference between the risk and uncertainty? 69. Discus the different types of risk? 70. What are the different sources of risk? 71. Discuss the different methods of reducing business risk? 72. What is portfolio management? What are objectives of portfolio management? 73. What are the assumptions of Capital Asset Pricing Model (CAPM)? 74. What are the sources of information for investment decisions?

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