CH017TEST.docVIP

Chapter 17 ANALYSIS OF FINANCIAL STATEMENTS True/False Questions 1. Financial statement analysis is the application of analytical tools to general-purpose financial statements and related data for making business decisions. Answer: True 2. The evaluation of company performance and financial condition includes evaluation of (1) past and current performance, (2) current financial position, and (3) future performance and risk. Answer: True 3. Profitability is the ability to generate future revenues and meet long-term obligations. Answer: False 4. Liquidity and efficiency are considered to be building blocks of financial statement analysis. Answer: True 5. Market prospects are the ability to provide financial rewards sufficient to attract and retain financing. Answer: False 6. Financial reporting includes not only general purpose financial statements, but also information from SEC filings, press releases, shareholders meetings, forecasts, management letters, auditors reports, and Webcasts. Answer: True 7. General-purpose financial statements include the (1) income statement, (2) balance sheet, (3) statement of changes in equity (or statement of retained earnings), (4) statement of cash flows, and (5) notes to these statements. Answer: True 8. Standards for comparison when interpreting financial statement analysis include competitor and industry performance data. Answer: True 9. Vertical analysis is the comparison of a companys financial condition and performance across time. Answer: False 10. Horizontal analysis is the comparison of a companys financial condition and performance to a base amount. Answer: False 11. A financial statement analysis report helps to reduce uncertainty in business decisions through a rigorous and sound evaluation. Answer: True 12. Trend analysis is a form of horizontal analysis that can reveal patterns in data across successive periods. Answer: True 13. Vertical analysis is a tool to evaluate individual financial statement items