Test bank for financial reporting financial statement analysis and valuation a strategic perspective 7th

Test Bank for Financial Reporting Financial Statement Analysis and Valuation A Strategic Perspective 7thWhat is the principal activity of security analysts?. All of the following are the

Test Bank for Financial Reporting Financial Statement Analysis and Valuation A Strategic Perspective 7th

What is the principal activity of security analysts?

1 to assign credit ratings

2 to apply IFRS adjustments

3 to value firms

4 to assess the need for audits

All of the following are the building blocks for financial statement analysis except:

1 Targeting growth opportunities that diversify exchange rates, risk exposure, and political uncertainty

2 Describing strategies that a firm pursues to differentiate itself from

competitors in order to evaluate competitive advantages, sustainability of thefirm’s earnings, and its risks

3 Evaluating the financial statements, including the accounting concepts and methods that underlie them and the quality of the information they provide

4 Identification of the economic characteristics of the industries and the

relation of those economic characteristics to the various financial statement ratios

When a firm attempting to create unique products or services for particular market niches, in order to achieve relatively high profit margins, this is best known as

1 a quality strategy

2 a low-cost leadership strategy

3 a vertical integration strategy

4 a product differentiation strategy

The following steps make up the steps in financial statement analysis 1 Identify the strategies the firm pursues to gain and sustain a competitive advantage 2 Analyze the current profitability and risk of the firm using information in the financial statements 3 Value the firm 4 Identify the economic characteristics and competitive dynamics of the industry in which a particular firm participates 5 Assess the quality of the firm’s financial

statements and, if necessary, adjust them for such desirable characteristics

as sustainability or comparability 6 Prepare forecasted financial statements Which of the following is the proper order for these interrelated sequential steps?

1 4,1,5,2,6,3

1 There is lengthy government testing and approval required.

2 Research and development is a lengthy and uncertain process

3 Patent protection is needed for exclusive rights

4 The largest asset is typically capital intensive Property, Plant and Equipment

Which forces typically represent vertical competition in a value chain?

1 potential entry and substitutes

2 buyer power and rivalry among existing firms

3 supplier power and potential entry

4 buyer power and supplier power

Which forces typically represent horizontal competition in a value chain?

1 rivalry among existing firms and supplier power

2 potential entry and buyer power

3 substitutes and potential entry

4 buyer power and supplier power

Which of the following is an independent entity comprising 15 members and a full-time professional staff that specifies acceptable accounting principles known as the IFRS?

1 FASB and IASB

2 GAAP and FASB

3 SEC and FASB

2 they are nonrecurring.

3 they are material in amount

4 they result from terminated involvement in a line of business

Opinions on the effectiveness of the internal control system and the fairness

of the amounts reported in the financial statements are known as:

1 Management Discussion and Analysis

2 Assurance Opinions

3 Notes to the Financial Statements

4 Management Assessments

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?

1 Form 8-K

2 Form 10-K

3 Form MD&A

4 Form FSAP

The primary purpose of the balance sheet is to:

1 report the current value of the business

2 measure the net income of a business up to a particular point in time

3 report the difference between cash inflows and cash outflows for the period

4 report the financial position of the reporting entity at a particular point in time

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?

1 statement of cash flows

2 statement of stockholders’ equity

4 cost of goods sold

Assets for a particular business might include

1 cash, retained earnings, and accounts payable

2 cash, common shareholders’ equity, and accounts receivable

3 cash, property, plant, and equipment, and accumulated other comprehensiveincome

4 cash, inventories, and goodwill

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

of a corporation are

1 contributed capital and property, plant, and equipment

2 retained earnings and notes payable

3 common stock and retained earnings.

4 contributed capital and equity securities

Which financial statement for a business would you look at to determine the company's earnings performance during an accounting period?

1 balance sheet

2 income statement

3 statement of cash flows

4 the Management Assessment

Accounts receivable represent:

1 amounts which are due to stockholders

2 amounts which have been borrowed to finance operations

3 amounts which are owed to the company by its customers resulting from credit sales

4 amounts which are owed by the company to its suppliers for past purchases

On the statement of cash flows, an amount paid for utilities would be

Which form does the balance sheet equation take in the United Kingdom?

1 Noncurrent Assets + Noncurrent Liabilities = Shareholders’ Equity

2 Revenues - Expenses = Shareholders’ Equity

3 Noncurrent Assets + [Current assets - Current Liabilities] - Noncurrent

Liabilities = Shareholders’ Equity

4 Noncurrent Assets - Current assets = Noncurrent Liabilities - Current

Liabilities + Shareholders’ Equity

Net income is equal to:

1 Assets minus Liabilities

2 Revenues and Gains minus Expenses and Losses

3 Shareholders’ Equity minus Assets

4 Revenues and Assets minus Expenses and Liabilities

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

1 At least one member of the audit committee of the board of directors must be

4 The FASB has oversight and enforcement authority over the SEC

Why is the operating activities section of the statement of cash flows often believed to be the most important part of the statement?

1 Because it shows the dividends that have been paid to stockholders

2 Because it indicates a company`s ability to generate cash from sales to meet current cash payments for goods or services

3 Because shows the net increase or decrease in cash during the period

4 Because it gives the most information about how operations have been financed

The tools for studying industry economics do not include

1 Value chain analysis

2 Classification using Porter’s five forces

3 Classification of cash flows

4 Economic attributes framework

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

1 Are the company’s products designed to meet a specific market segment?

2 Has the firm integrated forward into retailing to final consumers?

3 Is the firm diversified across several geographical markets?

4 Do earnings include nonrecurring gains or losses?

Which of the following economic characteristics is consistent with a grocery store chain?

1 minimal competition

3 Property, Plant and Equipment

4 Cash and Marketable Securities

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

a commercial bank?

1 Accounts and Notes Receivable

2 Inventory

3 Property, Plant and Equipment

4 Cash and Marketable Securities

Which of the following is not one of Porter’s five forces?

1 Buyer Power

2 Supplier Power

3 Threat of Regulation

4 Threat of Substitutes

When assessing buyer power using Porter’s five forces, which of the following

is not consistent with low buyer power?

1 Brand loyalty

2 Control of distribution channel

3 Large number of suppliers

4 Low price

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?

1 Are industry sales growing rapidly or slowly?

2 Do earnings include revenues that appear mismatched with the business model employed by the firm?

3 Does the industry include a large number of firms selling similar products?

4 What is the company’s degree of geographical diversification?

The third step in financial statement analysis is to assess the quality of the firm’s financial statements Which of the following is a question an analyst should ask when performing this step?

1 Are industry sales growing rapidly or slowly?

2 Do earnings include revenues that appear mismatched with the business model employed by the firm?

3 Does the industry include a large number of firms selling similar products?

4 What is the company’s degree of geographical diversification?

An example of an intangible asset is

1 a patent

2 land

3 investment in another company

4 raw material inventory

Which of the following would not appear as a liability on the balance sheet?

1 a labor contract

2 a note due to a bank

3 salary due employees at year-end

The accrual basis of accounting recognizes

1 revenue when cash is received from customers

2 expenses when paid

3 revenue when all or a substantial portion is performed

4 revenue when contracts are signed

Which of the following is not an activity reported in the cash flows financial statement?

1 operating

2 investing

3 manufacturing

4 financing

The accrual basis method of accounting can be best described as:

1 The recording of transactions and adjustments so that debits equal credits

2 The method that equates assets with liabilities and owners’ equity

3 The method that recognizes revenue when money is received

4 The method that matches incurred expenses with related revenues when they are earned

A value chain for an industry sets forth

1 the layers of management the needed to be successful

2 sequence of activities involved in the creation, manufacture and distribution

Which of the following economic characteristics is consistent with a

commercial bank?

1 Low barriers to entry

2 High levels of research and development

3 Low profit margin on lending activities

4 Low profit margin on fee-based financial services, such as merger consulting

Which of the following economic characteristics is consistent with a

pharmaceutical company?

1 Low barriers to entry

2 High levels of research and development

3 Low profit margins

4 Low business risk

Which of the following economic characteristics is consistent with a grocery store chain?

1 Low barriers to entry

2 High levels of research and development

3 High profit margins

4 Low capital intensity

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?

1 Does technological change play an important role in the firm maintaining a competitive advantage?

2 Has the firm diversified across several geographic markets?

3 Has the firm recognized revenues at the proper time?

4 Has the firm structured transactions to make it look more profitable than economic conditions suggest?

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

1 Existing technological expertise

2 Large required capital investment

3 Lack of rivalry among current participants

4 Existing patented technology

Current assets are defined as

1 cash and cash equivalents

2 all assets expected to be quickly used by the firm

3 cash and other assets that the firm expects to sell or consume during the normal operating cycle of a business, usually one year

4 cash and other assets that the firm expects maintain for a period including the normal operating cycle of a business, usually one year

Which of the following is not an expense of a business?

3 Unusual given the nature of the firm’s activities

4 Requires a cash outflow

Which of the following activities reported in the Statement of Cash Flows is not a financing activity?

1 Repayment of outstanding debt

2 Investing in equity securities of other companies

3 Payment of dividends

4 Issuing debt

5 The tools of effective financial statement analysis are also useful for assessing whether to extend to a firm, either for a short-term or for a long-term.

7 The first step in financial statement analysis is to identify the

of the industry in which a firm participates.

15 The sets forth the sequence of activities involved in the creation, manufacture and distribution of its products and services.

23 The five economic attributes that are normally studied are demand, supply, manufacturing, , and investing and financing.

33 Labor contracts and purchase order commitments are examples of contracts.

38

39 _ equals net income for a period plus

or minus the changes in shareholders’ equity accounts other than from net income and transactions with owners.

40

41 Statements that express all items in a particular financial statement as

a percentage of some common base are called

_ statements.

47 Under the Sarbanes-Oxley Act assumes

responsibility for establishing and maintaining adequate internal

control structure and procedures.

48

49 Most financial statement analysis aims to assess a firm’s

and .

50

51 _ financial statements are helpful in highlighting the relative magnitude of changes in financial statement data from year to year.

52

53 Basic EPS is calculated as net income minus

_ divided by the weighted average number of shares outstanding.

54

55 Firms intending to issue new bonds or capital stock file a

with the SEC that describes the offering.

61 How easily can customers switch to substitute products is a question one might ask when assessing the _.62.

63 Nonmonetary assets include assets that are , such

as inventories, and assets that are such as brand names.