Financial Statements Analysis Quiz 2

Which financial statement shows the assets, liabilities, and equity of a firm on a particular date?

• Statement of Cash flows

• Statement of Financial Position

• Statement of Changes in Equity

• Statement of Financial Performance

What does the Statement of Changes in Equity summarize?

• Significant accounting policies and other explanatory information

• Cash inflows and outflows from operating, financing, and investing activities

• Results of operations for the accounting period

• Changes in a company's equity for a period of time

Which financial statement provides information about the cash inflows and outflows from operating, financing, and investing activities during an accounting period?

• Statement of Financial Position

• Statement of Financial Performance

• Statement of Changes in Equity

• Statement of Cash flows

What are some of the challenges and obstacles confronting the users of financial statements?

• Volume of information, Complexity of the accounting policies, Variations in the quality of financial reporting

• Management discretion over timing of recognition and expenditures, Impact of inflation of financial statement data, Omission of difficult to find financial information

• Prestige, Effectiveness of management, Accounting estimates

• Intangibles (employee relations), Morale and Efficiency of employees, Reputation of the firm with its customers

What is the primary purpose of financial statement analysis?

• To meet internal earnings target and external expectations

• To compare actual financial conditions with expected financial conditions

• To provide historical information about the firm

• To identify an organization's financial strengths and weaknesses

What are some of the reasons that would push managers to manipulate reporting earnings?

• Meet internal earnings target, To even-out income, Provide 'window dressing' for an IPO or a loan

• Meet external expectations, To even-out income, Transparent Financial Reporting

• Change in methods or estimates with little or no disclosures, Departure from accounting standards, Strategic Matching

• To meet internal earnings target, To provide 'window dressing' for an IPO or a loan, Fictitious transactions

What is the formula for Net Working Capital?

• Current Assets / Current Liabilities

• Current Assets - Current Liabilities

• Cash + Marketable Sec + Cash flow from operating activities / Current Liabilities

• Quick Assets / Current Liabilities

What does the Receivable Turnover ratio measure?

• Cost of Goods Sold / Average Inventory

• 365 / Receivable Turnover

• Sales / Average Total Assets

• Credit Sales / Average Receivables

What does the Return on Sales ratio measure?

• Operating Income / Sales

• Net Income / Average Owner's Equity

• Net Income / Sales

• Net Income / Average Total Assets

What does the Debt Ratio measure?

• Owner's Equity / Total Assets

• Net Income before tax + Interest Expense net of tax / Interest Expense net of tax

• Total Liabilities / Total Assets

• Cash + Marketable Sec + Cash flow from operating activities / Current Liabilities