Prelim Quiz 2 - Financial Statement Analysis

What is the primary purpose of financial statement analysis?

• To understand financial conditions

• To prepare tax returns

• To manage human resources

• To create marketing strategies

Which of the following is NOT one of the four key financial statements?

• Balance Sheet

• Income Statement

• Cash Flow Statement

• Profit and Loss Statement

What does the Balance Sheet summarize?

• Retained earnings

• Cash inflows and outflows

• Assets, liabilities, and net position

• Revenue and expenses

What does the Income Statement provide?

• Summary of cash flows

• Summary of liabilities

• Summary of assets

• Financial summary of operating results

What does the Cash Flow Statement summarize?

• Retained earnings

• Net income and dividends

• Operating, investment, and financing cash flows

• Assets and liabilities

What does the Statement of Retained Earnings reconcile?

• Assets and liabilities

• Net income and cash dividends

• Sales and expenses

• Cash inflows and outflows

What is a limitation of financial ratios?

• They are always accurate

• They are easy to calculate

• They can indicate potential problems

• They provide a complete picture of performance

What does horizontal analysis compare?

• Industry standards

• Different companies

• Financial data over time

• Different financial statements

What is trend analysis based on?

• A base year for comparison

• Random financial data

• A single year of data

• Comparing two companies

What does vertical analysis express each item as?

• A fixed dollar amount

• A percentage of a relevant total

• A ratio of liabilities to assets

• A comparison with industry averages