...CHAPTER 5—BASICS OF ANALYSIS MULTIPLE CHOICE 1. Statements in which all items are expressed only in relative terms (percentages of a base) are termed: a. vertical Statements. b. horizontal Statements. c. funds Statements. d. common-Size Statements. e. None of the answers are correct. \. 2. In financial statement analysis, ratios are: a. the only type of analysis where industry data are available. b. absolute numbers converted to a common base. c. fractions usually expressed in percent or times. d. the only indication of the financial position of the firm. e. None of the answers are correct. 3. Denver Dynamics has net income of $2,000,000. Oakland Enterprises has net income of $2,500,000. Which of the following best compares the profitability of Denver and Oakland? a. Oakland Enterprises is 25% more profitable than Denver Dynamics. b. Oakland Enterprises is more profitable than Denver Dynamics, but the comparison can't be quantified. c. Oakland Enterprises is only more profitable if it is smaller than Denver Dynamics. d. Further information is needed for a reasonable comparison. e. Oakland Enterprises is more profitable if it is a larger firm than Denver Dynamics. 4. Which of the following can offer a type of comparison in financial statement analysis? a. Past ratios and figures b. Industry averages c. Statistics of competitors d. All of the answers are correct. e. None of the answers are correct. 5. Which of the following...
Words: 2598 - Pages: 11
...Course Goals and Learning Objectives: The goal of this course is to provide students a practitioner’s perspective on financial statement analysis. The course will emphasize thinking beyond the text and will focus to how to critically examine financial statement information and management representations. The course will primarily focus on financial statements prepared in accordance with US GAAP, however differences between US GAAP and IFRS will be outlined and examined. The class will be taught using a combination of lectures, class discussions and real-world case studies. In order to maximize our time together, students are expected to read the assigned chapters and complete the case studies on time. Given the brevity of the course and lecture time, students are encouraged to email me directly with questions at any time. Required Materials Textbook: Financial Statement Analysis & Valuation, (3rd Edition), By Easton, McAnally, Sommers & Zhang, Cambridge Business Publishers, 2013. ISBN: 978-1-61853-009-7 Case studies will be provided on TLE. Grading Schedule Class Participation/Case Work: Individual Project: Mid-Term/Exam 1: Final Exam: 20% 30% 20% 30% Grading Expectations Class Participation/Case Work: Each student should be prepared to discuss the required readings. To satisfy the requirements of class participation, students will be required to answer direct questions from the instructor and must actively participate in group discussions. 1|Page Case Work...
Words: 854 - Pages: 4
... Orrstown Financial Services 2 In this assignment, we focus on Orrstown Financial Services vs. DNB Financial Corporations. Both institutions have similar financials and sizes of entities. The first part of the assignment is about, studying both institutions and compare them to each other. After that there will be an analysis and general study about the health of ORRF as an overall entity. All data are taken from UBPR reports, 10 k reports, Bloomberg, Yahoo, and Banks main website. Common Size Net Income Statement This section of the analysis is about computing common size income statement for both ORRF and DNBFC. It seems that ORRF net income have decreased in value and resulted in huge loss in 2012 as (63%) of net revenue. This dramatic change of the net income value started in 2011 due to the real estate low prices that have been an issue since the financial crisis started. This conclusion is supported by looking at the provision of loan losses that increased in 2011, showing the cause of the huge net loss. On the other side, DNBFC provision for loan losses have increased reasonably in 2008 to become (10%). In addition, the net income increased steadily after 2008 too. It appears, so far, from the Net Income Statement that DNBFC is doing much better than ORRF. Common Size Balance Sheet Statement Based on the common size balance sheet statement of ORRF, we can see that the total loans used to be very high before the financial crisis. After 2009...
Words: 3124 - Pages: 13
...Financial Statement Analysis and Interpretation FIN/571 Corporate Finance November 23, 2015 Financial Statement Analysis The goal of any business regardless of its size should be to obtain and maintain financial profitability and maximize its shareholder’s wealth. The goal of a good manager is to have a solid understanding of his organization’s financial functionality in order to achieve the aforementioned by others. With a thorough understanding of a company’s financial statement managers can monitor cash flows, identify upcoming and changing trends as well as monitor a company’s financial performance in order to anticipate any changes that will affect a company’s profitability and the shareholder’s equity. Within the confines of this paper Team A will compare, contrast, and compute the financial statement analysis of three companies, which are Toyota, Southwest Airlines, and J C Penney. Team A will analyze each company’s financial statement by utilizing liquidity ratios, efficiency ratios, leverage ratios, and profitability ratios. We will also discuss the differences of the income statement in regards to the specific industries of the companies that we have chosen as well as the differences in accounting practices of the International Financial Reporting Standards (IFRS), the Financial Accounting Standard Board (FASB) and the Generally Accepted Accounting Principles (GAAP). Industry Differences Although most income statements are essentially...
Words: 1957 - Pages: 8
...CHAPTER 5—BASICS OF ANALYSIS MULTIPLE CHOICE 1. Statements in which all items are expressed only in relative terms (percentages of a base) are termed: a.|Vertical Statements| b.|Horizontal Statements| c.|Funds Statements| d.|Common-Size Statements| e.|none of the answers are correct| ANS: D 2. In financial statement analysis, ratios are: a.|the only type of analysis where industry data are available| b.|absolute numbers converted to a common base| c.|fractions usually expressed in percent or times| d.|the only indication of the financial position of the firm| e.|none of the answers are correct| ANS: C 3. Denver Dynamics has net income of $2,000,000. Oakland Enterprises has net income of $2,500,000. Which of the following best compares the profitability of Denver and Oakland? a.|Oakland Enterprises is 25% more profitable than Denver Dynamics.| b.|Oakland Enterprises is more profitable than Denver Dynamics, but the comparison can't be quantified.| c.|Oakland Enterprises is only more profitable if it is smaller than Denver Dynamics.| d.|Further information is needed for a reasonable comparison.| e.|Oakland Enterprises is more profitable if it is a larger firm than Denver Dynamics.| ANS: D 4. Which of the following can offer a type of comparison in financial statement analysis? a.|past ratios and figures| b.|industry averages| c.|statistics of competitors| d.|all of the answers are correct| e.|none of the answers are correct| ANS:...
Words: 2469 - Pages: 10
...Financial Statement Analysis Financial statements are the primary information companies publish about themselves. Financial statement analysis is the method used by any interested party to answer questions about a company by extracting the information from company financial statements. Financial statement analysis mainly focuses on investors, since businesses are in business to make profits, financial statements are prepared with shareholders’ in mind. Much of financial statement analysis for investors is relevant to other parties. While the shareholder is concerned with profitability, governmental regulators, short and long term creditors, competitors, and employees are concerned with profitability also. There is also a concern with the riskiness of the business for stockholders’ and employees as well. For the purpose of this paper, I will focus on financial statement analysis in regard to shareholders and short and long term creditors. Stockholders’ (shareholders’) equity can be found on the balance sheet. It is the claim by owners, the residual claim on the assets after subtracting liability claims. This is important to stockholders because it shows the degree of which net operating assets are financed by common equity, financial leverage. The balance sheet is a statement of the company’s investments, from its investing activities, and the claims to the payoffs from those investments. Both assets and liabilities are divided into current and long-term categories...
Words: 617 - Pages: 3
...Financial Statement Analysis: WOW, BHP and TSE compared Introduction Financial statements are often called “the language of business.” Thus, any leader in every area of business and non-profit management will need to know and understand how to read, analyse, and interpret the meaning and decision making implications of financial statements. Every accountant and financial analyst will need to be able to calculate financial ratios and analyse related non-financial data in order to see whether the company is successful or not and suggest what can be improved in the operations if needed. Therefore, there was thorough financial investigation of BHP Billiton, Transfield Services Limited and Woolworths Limited. In order to investigate these companies activity, the 2008 and 2009 annual reports were retrieved from official companies’ websites. Also general information on industry averages for various ratios was obtained from financial websites as well as ASX website. Specific events that could have impacted a company’s operations were followed on the related web-links. In order to make a financial decision, financial analysis of financial ratios was conducted. In order to have the most necessary information following ratios were considered to be most important in making investment decision - profitability ratios that measure a company’s earning ability, in the broad categories of margins and returns. The major margins in our case were gross profit and net profit margin...
Words: 5098 - Pages: 21
...FINANCIAL MANAGEMENT Financial Statement Analysis The process of determining financial strengths and weaknesses of a firm by establishing strategic relationship between the items of the balance sheet, profit and loss account and other operative data. Financial Statement Analysis Metcalf and Titard:It is a process of evaluating the relationship between component parts of a financial statement to obtain a better under standing of a firm’s position and performance. Financial Statement Analysis Purpose:To diagnose the information contained in financial statements so as to judge the profitability and financial soundness of the firm. Types of Financial Analysis On the basis of: The materials used. The modus operandi of analysis – i.e., the method of operation followed in the analysis. Types of Financial Analysis On the basis of materials used: External analysis. Internal analysis. Types of Financial Analysis On the basis of materials used: External analysis. • This analysis is done by outsiders who do not have access to the detailed internal accounting records of the business firm. (Investors, creditors, government agencies, credit agencies and general public.) Types of Financial Analysis On the basis of materials used: Internal analysis. • This analysis is conducted by persons who have access to the internal accounting records of a business firm. (Executives and employees of the organization and government agencies which have statutory powers...
Words: 3529 - Pages: 15
...associated logistics services. (Brambles, 2013) This report aims to evaluate Brambles' overall financial performance, prospect and provide recommendations on holding or selling Brambles' share finally. The accounting analysis assesses the influence that may be exerted by Brambles accounting policies through analyzing three aspects of key accounting policies, accounting flexibility and the quality of disclosure. The financial analysis illustrates that the financial profitability of Brambles is relatively favorable due to the high-level of ROE and ROA in the past five years. In addition, the highest financial leverage in Brambles result in the increased profits were insufficient to offset the increment in cash capital expenditure. Therefore, Brambles' efficiency and liquidity in investment management may induce risk in the future. The valuation analysis combines the discounted cash flow model, discounted residual income model and sensitivity analysis. The range of estimated share price is within AUD$8.7-$16.62. The current market share price is AUD$9.17. Therefore, the recommendation is strong hold or buy. 1 Accounting Analysis 1.1 Key Accounting Policies The key success factors for Brambles Ltd. include Goodwill and Property, Plant, and Equipment. The following table summarizes accounting measures: (Brambles Ltd. Annual Report, 2012, p.81, p.82) Table 1 Accounting Policy Analysis | Goodwill | Property, Plant, and Equipment | Initial Recognition | Goodwill is carried...
Words: 2079 - Pages: 9
...Financial Statement Analysis Celeste Thompson, Marcy Newbern, Cynthia Rios, Lashun Nicholson, Joseph Terramgra ACC/561 August 30, 2010 Financial Statement Analysis The financial statement is a report that divulges a company’s past and present financial standings. The financial statement can be thought of as an economic picture for a company. A financial statement analysis is used by investors when an important business decision is to be made. A financial statement analysis can consist of various ratio calculations. This paper will provide information on three different companies and several calculated ratios, information on the differences in the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) and last the differences in industries and how they affect the presentation. Differences in the IASB and the FASB Domestic and foreign corporations have two different accounting standards to follow when preparing their financial statements. The FASB creates the standards for domestic companies and the IASB creates the standards for international organizations. Although the FASB and the IASB are currently working on a convergence project to streamline these accounting measures and create a set of standards that both domestic and international companies can use uniformly, this is a project that will take years to complete and perfect. For now, the differences in these standards...
Words: 1218 - Pages: 5
...Financial Statement Analysis ACC 561/PR May 24, 2014 Financial Statement Analysis A company owner or manager requires financial statements to improve their business or to make any important decision regarding their operations. Puerto Rico is a land that has many companies doing business, some are local or international. CVS Caremark Corporation is one of the main traded companies doing business here. This Corporation provides integrated pharmacy and health care services in United States and Puerto Rico (CVS 2014). CVS Caremark Corp. sells prescriptions drugs and over the counter but also provides a variety of products for everyday use, such as cosmetics, convenience foods among others. The following represent a brief analysis on the financial statements of the corporation. Taking the last year financial statement reported on December 2013, the current ratio for CVS Caremark is 1:6 which means that the current assets are more than its current liabilities. The current ratio illustrates CVS Caremark ability to remain solvent. On the contrary, the Corporation liquidity ratio is 0.926 which means CVS may not have enough liquid assets to pay their debts in a short period. The DuPont ratio reflects a 12.02 return on equity, measuring the Corporation efficiency at generating profits from every shareholder's equity. CVS has a profit margin of 23% this indicates that the Corporation is not having control of the cost compared to its competitors meaning that CVS has a net income of...
Words: 775 - Pages: 4
...Financial Statement Analysis Analysis of financial statements uses income statement and balance sheets as financial tools to ascertain the financial performance of an organization and also give a depiction of where an organization has been, where it is at present and its future projection. Financial analysis is important in helping an administrator understand how different variables in an organization influence the profitability of an organization and influencing variables, although, review alone is not adequate to understand the true picture of the performance of an organization and requires understanding of operational conditions that led to financial performance (Gapenski, 2012). Operational Indicator Analysis Operational performance analysis helps explain how operating performance affects financial performance. Patient length of stay, patient readmission for same ailment, volume, and other variables are some operational variables studied on their effect on financial performance. Most hospitals study six financial indicators in financial terms which include: net price per discharge, Medicare payment percentage, outpatient revenue exchange, occupancy rate, average length of stay and cost per discharge (Gapenski, 2012). These indicators are used to paint a picture by an administrator of the direct relationship of these factors and how it impacts the financial performance of their organization. Financial Ratio Financial ratio analysis is ratio analysis applied to the...
Words: 472 - Pages: 2
...the company’s performance. However, the quality of the results presented is equally important. That is, the earnings reported must be reflective of the future earnings capacity of the company. This will enable investors to understand the core earnings of the firm and help in forecasting the performance of the company. If earnings is of a poor quality, it implies that the earnings are not a good indicator of the company’s performance. (Penman, 2013) The Australian corporate environment receives support from legislation and common law to ensure companies are compliant and providing timely and accurate financial information to the users. Conover, et. Al. (2008) found that common law countries such as Australia had less incidents of late filing and less days to file its annual reports, when compared with code law countries. HVN’s annual reports were analysed and the financial statements were reformatted to provide a better understanding of the core earnings. In examining the quality of HVN’s accounting reports, it is important to understand the business and strategy of HVN, as explained in the previous section. HVN’s resurgence in 2013-14 after a gradual drop in profits from 2010 through 2013, is an indicator of management’s successful changes in strategy.___________________ (CAN INSERT REASONINGS HERE BASED ON SECTION 1- Business Strategy) Key Items Looked At * Detecting Manipulation in Revenue Description | | 2010 | 2011 | 2012 | 2013 | 2014 | ('000) | Net Sales | |...
Words: 1138 - Pages: 5
...Q NO.03: Discuss the role of each of the following in the Formation of Accounting Principles? * AICPA * FASB * SEC Ans: * AICPA: American Institute of Certified Public Accountant: The American Institute of Certified Public Accountants (AICPA) is the national professional organization for Certified Public Accountants (CPAs) in the United States. Founded in 1887, the American Institute of Certified Public Accountants (AICPA) is the national professional organization of Certified Public Accountants (CPAs) in the United States, with more than 394,000 members in 128 countries in business and industry, public practice, government, education, student affiliates and international associates. It sets ethical standards for the profession and U.S. auditing standards for audits of private companies, non-profit organizations, federal, state and local governments. It also develops and grades the Uniform CPA Examination. The AICPA maintains offices in New York City; Washington, DC; Durham, NC; and Ewing, NJ.The AICPA celebrated the 125th anniversary of its founding in 2012. The AICPA’s founding established accountancy as a profession distinguished by rigorous educational requirements, high professional standards, a strict code of professional ethics, and a commitment to serving the public interest. The AICPA’s mission is to provide members with the resources, information and leadership that enable them to provide valuable services in the highest professional manner...
Words: 1851 - Pages: 8
...BMAN 20611 THE UNIVERSITY OF MANCHESTER BMAN 20611 Financial Statement Analysis Special assessment for exchange students 2013 Attempt ALL parts of the question. Your assessment must be submitted electronically as a Word document through the course Blackboard site. Follow the ‘Submission Instructions’ to submit your assessment, which are in a separate document on the course Blackboard site. Your assessment must be a maximum of 8 pages (including tables, diagrams, calculations, footnotes, pictures and appendices). The reference list is excluded from this page limit. You must use Times New Roman font, size 12 point. The only exceptions to this rule are footnotes, calculations, tables and diagrams. Text within these may be reduced to size 10 point. Character scale must be 100% and spacing and position must be set to the default options within Word. Line spacing must be 1.5 lines, with an extra line after headings and between paragraphs. An automatic penalty of 15% of the mark will be applied to all assessments which exceed the 8 page maximum. Page 1 of 2 BMAN 20611 Attempt ALL parts of the question Question a) Calculate the following ratios from the J Sainsbury plc’s consolidated financial statements for both the 52 weeks ended 16 March 2013 and the 52 weeks ended 17 March 2012, clearly showing your detailed workings: i. Return on capital employed – 2013: 9.25% and 2012: 9.52% ii. Return on shareholders’ equity – 2013: 10...
Words: 492 - Pages: 2
