D366 - Financial Statement Analysis (Pre-Assessment)

An investor is examining a company's balance sheet and subtracts current liabilities from current assets. What is the investor trying to understand by this calculation?

Total capital

Book value

Working capital

Sales revenue

Working capital

A company's chief financial officer (CFO) wants to determine how much cash is used for normal business operations. Which element of a statement of cash flows aids in this calculation?

Net cash used in investing activities

Increase in accounts receivable

Additions to property and equipment

Payment of dividends to stockholders

Increase in accounts receivable

A legal strategist is advising management on ways to gain market share and has made growth-oriented investments. Sales have stayed stagnant despite the investment, and the company wants to increase the company's valuation. Which strategy should increase this company's common stock price?

Stock buybacks

Monthly dividends

Retained earnings

Repurchased debt

Stock buybacks

An investor calculates a firm's basic earnings per share (EPS) and notices the ratio has doubled year over year while the weighted average number of common shares outstanding has remained constant. What caused the rise in the ratio?

An increase in total liabilities

A decrease in total assets

An increase in net income

A decrease in gross revenue

An increase in net income

An investor is analyzing firms in the retail industry. They notice customers are not very price-sensitive, and the individuals' behaviors do not change significantly with the business cycle. Which economic attribute is the investor examining?

Supply

Demand

Valuation

Distribution

Demand

An analyst is studying a firm's common-size balance sheet where the current year cash and the cash equivalents item is equal to 15%. What is the divisor of the percentage?

Total assets

Total liabilities

Stockholder equity

Current stock price

Total assets

A stock market analyst searches the Securities and Exchange Commission (SEC) filings for companies who recently filed a prospectus. Which business activity is the analyst looking for in the filings?

A notice of bankruptcy or insolvency

A completion of accounting audits

An acquisition of competitor firms

An issuance of equity shares or bonds

An issuance of equity shares or bonds

An investor is reviewing a firm's statement of cash flows and identifies a significant increase from operations. Which business activity is a driver of the increase?

Raising new debt and retiring old debt

Investing reserves in the stock market

Providing services and selling goods

Selling more equity shares

Providing services and selling goods

An analyst is reviewing a firm's income statement and notices that while the gross profit amount increased $5 million year over year, the gross profit percentage on the common-size income statement decreased. What might cause this to occur?

An increase in interest expense

A decrease in goodwill

A decrease in fixed assets

An increase in revenue

An increase in revenue

A company provides unique materials used in space rockets with little competition and can set high prices. Which economic force is described?

High buyer leverage

Low monopoly level

High supplier power

Low entrance cost

High supplier power

A firm's management produces a good faith estimate of pension liabilities for financial statement reporting. What is the difference between the estimated value of the liability and the actual value?

Measurement error

Negligent bias

Aggressive accounting

Income fraud

Measurement error

Management decides to use the last-in, first-out (LIFO) inventory method to measure the amount reported on the balance sheet. What is a result of this decision during a period when prices have risen significantly over time?

The current cash position is overstated

The future cash flow potential is understated

The historical income was overstated

The current accrued liabilities are understated

The future cash flow potential is understated

A lender wants to provide funding to a small business and needs to establish the market value of the enterprise. The lender enters into a contract providing funds based on an estimation of the enterprise value. Which action must be taken to provide an accurate assumption of the enterprise value?

Aggregate end-of-month liabilities compared to sales

Use a comparable analysis based on debt to income ratios

Project current gains over the duration of the proposed loan

Create an estimate using cash inflows and expenses

Create an estimate using cash inflows and expenses

During an annual review of a company's financial statements, an analyst notices that the business has financed a majority of the company's equipment using bonds, and the company reported the same performance ratios as previous years. The analyst suspects earnings manipulation and uses the Beneish Manipulation Index Score (Beneish M-score) to check that hypothesis. How is the resulting Beneish M-score likely to affect the company?

Declines in inventory in future years will reduce valuation

Accumulation of fines each year debt payments are unsatisfied

Difficulty in acquiring favorable debt financing terms in the future

Inability to capitalize future expansions using secured debt

Difficulty in acquiring favorable debt financing terms in the future

A law firm applies for a loan to expand business operations. Before the loan is approved, the lender conducts a detailed analysis of the firm's liquidity and solvency. Why are the liquidity and solvency of the firm important for the lender to assess?

The measurements describe the consistency of the firm's earnings

The ability of the firm to finance growth is made evident

The daily operational health of the firm is highlighted through this analysis

The firm's ability to pay off long-term and short-term debt can be discovered

The firm's ability to pay off long-term and short-term debt can be discovered

An analyst creating a valuation model makes a downward adjustment to a firm's reported accounts receivable balance. Which estimate is the analyst discounting?

Depreciation schedule

Uncollectible amounts

Contingent obligations

Inventory counts

Uncollectible amounts

A company has manipulated perceived demand for the company's securities on secondary markets through executives' rapid purchases of the company's shares in large quantities. The company's financial ratios dramatically improved on financial statements shortly after this occurrence. The executives proceeded to sell the shares after significant share price appreciation. Which outcome should deter executives from this manipulation?

Declines in future share prices with capitalization and legal implications

Earnings per share dilution due to share issuance increases

Tax implications for realized capital gains on shares traded

Revisions of cash flow reporting causing outsized valuation volatility

Declines in future share prices with capitalization and legal implications