FINA 470 - EXAM QUESTIONS WITH
CORRECT ANSWERS
analysis of cash flows - ANSWER-evaluate source and deployment of funds
What type of methods should an analyst use to determine the intrinsic value of a
specific company? - ANSWER-Valuation refers to the process of converting forecasts of
future payoffs into an estimate of company value. The purpose is to estimate intrinsic
value of a company or present value theory.
What are the various business activities that an analyst should consider? - ANSWER-
Investing, Planning, Financial, Operating
Planning activities - ANSWER-a business plan is an important part of planning.
Financing activities - ANSWER-methods that companies use to raise money to pay for
their needs.
external financing - ANSWER-equity investors (owners or shareholders) and creditors
(lenders).
return - ANSWER-the equity investor's share of company earnings in the form of either
earnings distribution or earnings reinvestment
earnings distribution - ANSWER-the payment of dividends to shareholders
dividend payout - ANSWER-refers to the proportion of earnings distributed
earnings reinvestment - ANSWER-refers to retaining earnings within the company for
use in its business: also called internal financing
earnings retention ratio - ANSWER-reflecting the proportion of earnings retained is
defined as one less the dividend payout ratio
investing activities - ANSWER-refers to a company's acquisition and maintenance of
investments for purposes of selling products and providing services, and for the purpose
of investing excess cash
operating assets - ANSWER-investments in land, buildings, equipment, legal rights,
inventories, human capital, information systems, etc
financial assets - ANSWER-investing cash in securities such as other companies' equity
stock, corporate and government bonds, and money market funds
, What type of data is available for the analyst to utilize? - ANSWER-Quantitative:
financial statements, industry statistics, economic indicators, regulatory filings, trade
reports. Qualitative: management discussion and analysis, chairperson's letter, press
releases, financial press, mission statement, websites
What does financial statements include? - ANSWER-balance sheet, income statement,
statement of shareholder's equity, statement of cash flows
Additional information beyond financial statements - ANSWER-Management's
Discussion and Analysis, Management Report, Auditor Report, Explanatory Notes to
Financial Statements, Supplementary Information, Proxy Statement
Balance sheet - ANSWER-Total investing = total financing + creditor financing + owner
Equity - ANSWER-funding invested or contributed by owners (contributed capital) and
accumulated earnings in excess of distributions to owners (RE)
working capital - ANSWER-difference between current assets and current liabilities
Income statement - ANSWER-Revenues - COGS = Gross Profit
Gross profit - operating expenses = operating profit
accrual basis - ANSWER-earnings are determined under this basis, where revenues are
recognized when a company sells goods or renders services. Expenses are matched to
the revenues regardless of when it pays cash.
Statement of changes in shareholder's equity - ANSWER-the statement of retained
earnings, comprehensive income, and changes in capital accounts
Management's Discussion and Analysis (MD&A) - ANSWER-Required to be filed by
companies with publicly traded debt and equity securities. Management must highlight
any favorable or unfavorable trends and identify significant events and identify
uncertainty that affect a company's liquidity, capital resources, and results of operations.
Management reports - ANSWER-The purposes of this report are to reinforce senior
management's responsibilities for the company's financial and internal control system
and the shared roles of management, directors, and the auditor in preparing financial
statements
Auditor report - ANSWER-an external auditor is an independent certified public
accountant hired by management to provide an opinion on whether or not the
company's financial statements are prepared in conformity with GAAP.
Explanatory notes - ANSWER-Include information on accounting principles and
methods employed, detailed disclosures regarding individual financial statement items,
CORRECT ANSWERS
analysis of cash flows - ANSWER-evaluate source and deployment of funds
What type of methods should an analyst use to determine the intrinsic value of a
specific company? - ANSWER-Valuation refers to the process of converting forecasts of
future payoffs into an estimate of company value. The purpose is to estimate intrinsic
value of a company or present value theory.
What are the various business activities that an analyst should consider? - ANSWER-
Investing, Planning, Financial, Operating
Planning activities - ANSWER-a business plan is an important part of planning.
Financing activities - ANSWER-methods that companies use to raise money to pay for
their needs.
external financing - ANSWER-equity investors (owners or shareholders) and creditors
(lenders).
return - ANSWER-the equity investor's share of company earnings in the form of either
earnings distribution or earnings reinvestment
earnings distribution - ANSWER-the payment of dividends to shareholders
dividend payout - ANSWER-refers to the proportion of earnings distributed
earnings reinvestment - ANSWER-refers to retaining earnings within the company for
use in its business: also called internal financing
earnings retention ratio - ANSWER-reflecting the proportion of earnings retained is
defined as one less the dividend payout ratio
investing activities - ANSWER-refers to a company's acquisition and maintenance of
investments for purposes of selling products and providing services, and for the purpose
of investing excess cash
operating assets - ANSWER-investments in land, buildings, equipment, legal rights,
inventories, human capital, information systems, etc
financial assets - ANSWER-investing cash in securities such as other companies' equity
stock, corporate and government bonds, and money market funds
, What type of data is available for the analyst to utilize? - ANSWER-Quantitative:
financial statements, industry statistics, economic indicators, regulatory filings, trade
reports. Qualitative: management discussion and analysis, chairperson's letter, press
releases, financial press, mission statement, websites
What does financial statements include? - ANSWER-balance sheet, income statement,
statement of shareholder's equity, statement of cash flows
Additional information beyond financial statements - ANSWER-Management's
Discussion and Analysis, Management Report, Auditor Report, Explanatory Notes to
Financial Statements, Supplementary Information, Proxy Statement
Balance sheet - ANSWER-Total investing = total financing + creditor financing + owner
Equity - ANSWER-funding invested or contributed by owners (contributed capital) and
accumulated earnings in excess of distributions to owners (RE)
working capital - ANSWER-difference between current assets and current liabilities
Income statement - ANSWER-Revenues - COGS = Gross Profit
Gross profit - operating expenses = operating profit
accrual basis - ANSWER-earnings are determined under this basis, where revenues are
recognized when a company sells goods or renders services. Expenses are matched to
the revenues regardless of when it pays cash.
Statement of changes in shareholder's equity - ANSWER-the statement of retained
earnings, comprehensive income, and changes in capital accounts
Management's Discussion and Analysis (MD&A) - ANSWER-Required to be filed by
companies with publicly traded debt and equity securities. Management must highlight
any favorable or unfavorable trends and identify significant events and identify
uncertainty that affect a company's liquidity, capital resources, and results of operations.
Management reports - ANSWER-The purposes of this report are to reinforce senior
management's responsibilities for the company's financial and internal control system
and the shared roles of management, directors, and the auditor in preparing financial
statements
Auditor report - ANSWER-an external auditor is an independent certified public
accountant hired by management to provide an opinion on whether or not the
company's financial statements are prepared in conformity with GAAP.
Explanatory notes - ANSWER-Include information on accounting principles and
methods employed, detailed disclosures regarding individual financial statement items,
