CFA LEVEL 1: QUANT UPDATED Q
AND A 100% CORRECT.
Financial Statement Analysis Framework - CORRECT ANSWER✅✅✅provides an
overview of the methodology used by analysts to consistently analyze financial statements
1. articulate the purpose and context of analysis
2. collecting data
3. process the data
4. analyzing and interpreting the processed data
5. develop/communicate conclusions and recommendations
6. follow up
Scope of Financial Statement Analysis - CORRECT ANSWER✅✅✅- analysis is based on
financial statements is performed by equity investors interested in valuation, lenders interested in
liquidity, suppliers interested in future business, and analysts working to recommend security
purchases, mergers, credit and lending, debt ratings, and forecasting
Balance Sheet - Assets - CORRECT ANSWER✅✅✅- assets are items owned by a company
that will benefit the company in the future
- found on balance sheet; include current/noncurrent
- required to be listed separately under IFRS
- typically shown on balance sheet at historical cost
Income Statement - Introduction - CORRECT ANSWER✅✅✅- reports revenues, expenses,
and profit or loss for a company on a consolidated basis over a short period of time
,- revenues are matched with expenses incurred to earn the revenue, and the net result is a profit
or a loss for the period
- when the company reports on a consolidated basis, they include all companies they own in one
income statement
Statement of Changes in Equity (1) - CORRECT ANSWER✅✅✅- reconciles the balance in
equity from the beginning of a period to the end of a period
- equity is composed of paid-in capital, retained earnings, other comprehensive income, and
minority interests
- statement of changes in equity reconciles the beginning equity balance with the period-ending
equity balance by analyzing the changes in the four components of equity
Beginning equity +/- increase/decrease in paid-in capital + net income (or minus net loss) -
dividends paid +/- changes in other comprehensive income +/- changes in minority interest
Balance Sheet - Liabilities - CORRECT ANSWER✅✅✅- future obligations of a company,
which may be monetary or non-monetary
- include current/non-current liabilities
- required to be listed separately under IFRS as a means of helping analysts in identifying threats
to liquidity
Financial Notes (footnotes) and Supplementary Schedules - CORRECT ANSWER✅✅✅-
required part of the financial reports and contain essential information about the company's
accounting policies, methods, and estimates, many of which are essential for analysis
Statement of Comprehensive Income - CORRECT ANSWER✅✅✅- requirement under
IFRS
, - comprised of both profit and loss for the period and other items affecting equity
- presented as one or two statements, with one being the income statement
- includes the traditional statement of operations and a second component presenting items that
affect owners' equity but are not share transactions
- component is called Other Comprehensive Income (OCI)
- OCI reports certain gains and losses that bypass the income statement and end up as
adjustments to owner's equity
- OCI includes fair value changes, items reclassified to profit and loss, and other non-owner
changes in equity
- AOCI is included as a separate line item in the equity section
* US GAAP allows corporations to present OCI as part of the statement of changes in equity as
opposed to being part of the comprehensive income statements
Management Discussion and Analysis - CORRECT ANSWER✅✅✅- provides readers with
information needed to understand a company's financial condition, changes in financial
condition, and results of operations
5 Elements
1. nature of the business
2. management's objectives and strategies
3. company's significant resources, risks, relationships
4. results of operations
AND A 100% CORRECT.
Financial Statement Analysis Framework - CORRECT ANSWER✅✅✅provides an
overview of the methodology used by analysts to consistently analyze financial statements
1. articulate the purpose and context of analysis
2. collecting data
3. process the data
4. analyzing and interpreting the processed data
5. develop/communicate conclusions and recommendations
6. follow up
Scope of Financial Statement Analysis - CORRECT ANSWER✅✅✅- analysis is based on
financial statements is performed by equity investors interested in valuation, lenders interested in
liquidity, suppliers interested in future business, and analysts working to recommend security
purchases, mergers, credit and lending, debt ratings, and forecasting
Balance Sheet - Assets - CORRECT ANSWER✅✅✅- assets are items owned by a company
that will benefit the company in the future
- found on balance sheet; include current/noncurrent
- required to be listed separately under IFRS
- typically shown on balance sheet at historical cost
Income Statement - Introduction - CORRECT ANSWER✅✅✅- reports revenues, expenses,
and profit or loss for a company on a consolidated basis over a short period of time
,- revenues are matched with expenses incurred to earn the revenue, and the net result is a profit
or a loss for the period
- when the company reports on a consolidated basis, they include all companies they own in one
income statement
Statement of Changes in Equity (1) - CORRECT ANSWER✅✅✅- reconciles the balance in
equity from the beginning of a period to the end of a period
- equity is composed of paid-in capital, retained earnings, other comprehensive income, and
minority interests
- statement of changes in equity reconciles the beginning equity balance with the period-ending
equity balance by analyzing the changes in the four components of equity
Beginning equity +/- increase/decrease in paid-in capital + net income (or minus net loss) -
dividends paid +/- changes in other comprehensive income +/- changes in minority interest
Balance Sheet - Liabilities - CORRECT ANSWER✅✅✅- future obligations of a company,
which may be monetary or non-monetary
- include current/non-current liabilities
- required to be listed separately under IFRS as a means of helping analysts in identifying threats
to liquidity
Financial Notes (footnotes) and Supplementary Schedules - CORRECT ANSWER✅✅✅-
required part of the financial reports and contain essential information about the company's
accounting policies, methods, and estimates, many of which are essential for analysis
Statement of Comprehensive Income - CORRECT ANSWER✅✅✅- requirement under
IFRS
, - comprised of both profit and loss for the period and other items affecting equity
- presented as one or two statements, with one being the income statement
- includes the traditional statement of operations and a second component presenting items that
affect owners' equity but are not share transactions
- component is called Other Comprehensive Income (OCI)
- OCI reports certain gains and losses that bypass the income statement and end up as
adjustments to owner's equity
- OCI includes fair value changes, items reclassified to profit and loss, and other non-owner
changes in equity
- AOCI is included as a separate line item in the equity section
* US GAAP allows corporations to present OCI as part of the statement of changes in equity as
opposed to being part of the comprehensive income statements
Management Discussion and Analysis - CORRECT ANSWER✅✅✅- provides readers with
information needed to understand a company's financial condition, changes in financial
condition, and results of operations
5 Elements
1. nature of the business
2. management's objectives and strategies
3. company's significant resources, risks, relationships
4. results of operations
