FINANCIAL STATEMENT ANALYSIS EXPECTED
QUESTIONS WITH VERIFIED ANSWERS
Question 1.
What is the purpose of financial statement analysis?
ANSWER
1) To examine data for obvious trends and patterns.
2) To illuminate company financial, physical, operational, and organizational strengths and
weaknesses
3) To identify the next questions to ask of various operating groups
Question 2.
Who are Analyzers or Users of Financial Analyses
Internal users (company managers)
ANSWER
1) Lenders
2) Stockholders
3) Competitors
Question 3.
Can finance can be used effectively in competitive rivalry?
ANSWER
Yes.
Question 4.
Facts about peer firms and industries:
ANSWER
i. Some industries are very diverse
ii. Many firms operate in multiple industries
iii. Some firms really don't have peers (conglomerates)
iv. Even some comparisons that appear to "make sense" can be problematic
1/7
, Question 5.
Basic Financial Analysis Tools
ANSWER
i. Common size financial statements
ii. Financial ratios
Question 6.
Common Size Financial Statements
ANSWER
- Statement values are transformed into percentages
- Percentages make it easier to make comparisons and spot trends
Question 7.
Two types of common size statements
ANSWER
i. Horizontal
ii. Vertical
Question 8.
Vertical Common Size Analysis
ANSWER
Each line items is divided by a common value
- Income Statement: divided by Net Sales
- Balance sheet: divided by Total Assets
Question 9.
Horizontal Common Size Analysis
ANSWER
The percent change in each Income Statement and Balance Sheet is calculated from period to
period
- 2015 income/ 2014 income =
2/7
QUESTIONS WITH VERIFIED ANSWERS
Question 1.
What is the purpose of financial statement analysis?
ANSWER
1) To examine data for obvious trends and patterns.
2) To illuminate company financial, physical, operational, and organizational strengths and
weaknesses
3) To identify the next questions to ask of various operating groups
Question 2.
Who are Analyzers or Users of Financial Analyses
Internal users (company managers)
ANSWER
1) Lenders
2) Stockholders
3) Competitors
Question 3.
Can finance can be used effectively in competitive rivalry?
ANSWER
Yes.
Question 4.
Facts about peer firms and industries:
ANSWER
i. Some industries are very diverse
ii. Many firms operate in multiple industries
iii. Some firms really don't have peers (conglomerates)
iv. Even some comparisons that appear to "make sense" can be problematic
1/7
, Question 5.
Basic Financial Analysis Tools
ANSWER
i. Common size financial statements
ii. Financial ratios
Question 6.
Common Size Financial Statements
ANSWER
- Statement values are transformed into percentages
- Percentages make it easier to make comparisons and spot trends
Question 7.
Two types of common size statements
ANSWER
i. Horizontal
ii. Vertical
Question 8.
Vertical Common Size Analysis
ANSWER
Each line items is divided by a common value
- Income Statement: divided by Net Sales
- Balance sheet: divided by Total Assets
Question 9.
Horizontal Common Size Analysis
ANSWER
The percent change in each Income Statement and Balance Sheet is calculated from period to
period
- 2015 income/ 2014 income =
2/7
