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20 Cards in this Set
- Front
- Back
What are the 4 Building Blocks of Anaylsis of the Financial Statements?
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1. Liquidit and Efficiency
2. Solvency 3. Profitability 4. Market Prospects |
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Describe Liquidity and Efficiency.
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Liquidity - The Ability to Meet Short Term Obligations
Efficiency - The Ability to Generate Revenues |
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Describe Solvency.
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The Ability to Generate Future Revenues and Meet Long-Term Obligations
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Describe Profitability.
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The Ability to Provide Financial Rewards Sufficient to Attract and Retain
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Describe Market Prospects
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Ability to Generate Positive Market Expectations
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What are the 4 Benchmarks that are the Standards for Comparisons
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1. Intracompany
2. Competitor 3. Industry 4. Guidelines |
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What does Intracompany Mean as Related to Standards for Comparison?
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The Company Being Analyized Can Provide its Own Standards for Comparison. Examples Would be Comparing Prior Year Net Income to the Current Year
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What does Competitor Mean as Related to Standards for Comparison?
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For the Company being Analyzed, Standards for Comparison Can be Created by One or More Competitors.
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What does Industry Mean as Related to Standards for Comparison?
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Industy Statistics Can Provide Standards for Comparison. Statistics are Available from Services Such as Dun and Bradstreet, Standard & Poor's and Moody
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What does Guidelines Mean as Related to Standards for Comparison?
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Guidelines are Rules of Thumb. General Standards of Comparison Can be Developed from Experience. Examples are 2:1 Level for the Current Ratio and 1:1 Level for the Acid Test Ratio. Guidelines Must be Applied Carefully Because Context is Crucial.
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What are the 3 Most Common Tools of Analysis for Finacial Statements
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1. Horizontal Analysis
2. Vertical Analysis 3. Ratio Analysis |
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What is the Basis of Horizontal Analysis
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Horizontal Anaylsis Refers to the Examination of Financial Statements Across Time
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What are Comparative Financial Statements
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Financial Statements that Show Financial Information in Side-by-Side Columns on a Single Statement, Called Comparative Format.
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How is Comparing Financial Statements Over a Relatively Short Time Period (2 or 3 Years) Often Done?
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By Comparing Line Items for Change. A Change Analysis Usually Includes Analyzing Absolute Dollar Amount Changes or Percent Changes.
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Why Does One Need to do Both a Dollar Amount Analysis and a Percent Change Analysis?
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Both Analysis are Relevant because Dollar Changes Can Yield Large Percent Changes that are Inconsistant with Importance. Example: A 50% Change from a Base Figure of $100 is Less Important than the Same Change from $100,000 in the Same Statement.
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What is Analysis Period?
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The Point or Period of Time for the Financial Statements Under Analysis
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What is Base Period?
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The Point or Period of Time that is Being Used for Comparison Purposes
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How do We Compute Dollar Change for a Financial Statement
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Dollar Change = Analysis Period Amount - Base Period Amount.
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What is the Formula for Percent Change
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% = Analysis Period Amount-Base Period Amount/Base Period Amount x 100
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When Computing Percent Change, Under What Circumstances Can We Not Compute It?
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When a Negative Number is Present in Either the Base Period or the Analysis Period Amount
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