Financial Analysis Test 1

Explanation
The given answer lists the five things that are typically included in a packet. These include financial statements, which provide a summary of a company's financial activities; notes, which provide additional information and explanations for the financial statements; MD&A (Management Discussion and Analysis), which is a section where management provides insights and explanations regarding the company's financial performance; auditor's report, which is a report prepared by an independent auditor validating the accuracy and fairness of the financial statements; and 5K trend, which refers to the company's annual report filed with the Securities and Exchange Commission that includes a comprehensive overview of the company's financial performance and future prospects.

Explanation
The four pieces of financial statements are the balance sheet, income statement, cash flows, and shareholders equity. These statements provide a comprehensive overview of a company's financial performance and position. The balance sheet shows the company's assets, liabilities, and shareholders' equity at a specific point in time. The income statement displays the company's revenues, expenses, and net income over a period of time. The cash flows statement shows the inflows and outflows of cash and cash equivalents during a specific period. Lastly, the shareholders equity statement shows the changes in shareholders' equity over time.

Explanation
The balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It consists of three main parts: assets, liabilities, and stockholders' equity. Assets represent the resources owned by the company, such as cash, inventory, and property. Liabilities are the company's obligations or debts, including loans, accounts payable, and accrued expenses. Stockholders' equity represents the ownership interest in the company and is calculated by subtracting liabilities from assets. It includes common stock, retained earnings, and additional paid-in capital.

Explanation
The answer includes the four essential components of an income statement: revenues, expenses, net profit or loss, and net profit or loss per share. Revenues represent the total income generated by the company, while expenses are the costs incurred in order to generate that income. Net profit or loss is the result of subtracting expenses from revenues, indicating the overall profitability of the company. Net profit or loss per share is calculated by dividing the net profit or loss by the number of shares outstanding, providing a measure of profitability on a per-share basis.

Explanation
The correct answer is "intro, scope, opinion." The auditor's report typically consists of three main sections: introduction, scope, and opinion. The introduction provides information about the auditors, their responsibilities, and the audited financial statements. The scope section explains the extent of the audit procedures performed and any limitations encountered. Finally, the opinion section presents the auditor's conclusion on the fairness of the financial statements and whether they comply with relevant accounting standards. These three sections together provide a comprehensive overview of the auditor's findings and assessment of the organization's financial statements.

Explanation
The given answer lists the five types of opinions that auditors may provide. An unqualified opinion means that the financial statements are presented fairly and without any material misstatements. An unqualified opinion with explanatory language means that although the financial statements are presented fairly, there is additional information that needs to be disclosed. A qualified opinion indicates that there are some limitations or exceptions to the financial statements. An adverse opinion means that the financial statements are not presented fairly and contain material misstatements. A disclaimer of opinion is issued when the auditor is unable to express an opinion on the financial statements.

Explanation
The cash flow statement is divided into three groupings: operating, investing, and financing. The operating activities section includes cash flows from day-to-day business operations, such as revenue from sales and payments to suppliers. The investing activities section includes cash flows from the purchase or sale of long-term assets, such as property, plant, and equipment. The financing activities section includes cash flows from activities related to the company's capital structure, such as issuing or repurchasing stock, borrowing or repaying loans, and paying dividends. These three groupings help to categorize and analyze the different sources and uses of cash within a company.

Explanation
The answer is liquidity, capital resources, and results of operations. These three topics are commonly discussed in the MD&A (Management's Discussion and Analysis) section of a company's financial statements. Liquidity refers to the company's ability to meet its short-term obligations, while capital resources discuss the company's long-term financial assets and funding sources. Results of operations provide an analysis of the company's financial performance, including revenues, expenses, and profitability. These topics are important for investors and stakeholders to understand the company's financial health and performance.

Explanation
The given answer lists four ways to manipulate numbers: depreciation, sales, materials, and labor. These are all common factors that can be adjusted or manipulated to impact financial figures. Depreciation refers to the decrease in value of an asset over time, which can affect the overall financial position. Sales represent the revenue generated from selling products or services, and manipulating sales figures can impact profitability. Materials and labor costs are two important components of production costs, and manipulating them can affect the overall expenses and profitability of a business.

Explanation
The four pieces that affect the quality of account reporting are policies, timing, discretion, and accuracy. Policies refer to the guidelines and rules set by an organization for preparing and presenting financial statements. Timing refers to the timeliness of reporting, ensuring that information is provided in a timely manner. Discretion involves the judgment and decision-making process in preparing the financial statements. Accuracy is crucial for ensuring that the information presented is correct and free from errors or misrepresentations. These four factors collectively contribute to the overall quality of account reporting.

Explanation
The correct answer is "held, trading, sale". These three types of securities refer to different categories in which securities can be classified. "Held" refers to securities that are held by a company for long-term investment purposes. "Trading" refers to securities that are bought and sold frequently for short-term gains. "Sale" refers to securities that are intended to be sold in the near future. These classifications help investors and analysts understand the purpose and nature of the securities held by a company.

Explanation
The correct answer includes all the current assets that are typically listed on a balance sheet. Cash refers to the amount of money a company has on hand. Market securities are investments that can easily be converted to cash. Accounts receivable represents the money owed to the company by its customers. Inventory includes the goods or materials that a company holds for sale.

Explanation
The correct answer options for non-current assets are productive assets, long-term investments, and intangibles. Non-current assets are those that are not expected to be converted into cash within a year. Productive assets refer to assets that are used to generate revenue, such as property, plant, and equipment. Long-term investments are assets held for a long period, such as stocks or bonds. Intangibles are assets that do not have a physical presence, such as patents or trademarks. These options accurately describe the different types of non-current assets.

Explanation
The correct answer includes "account payable," "notes payable," "current installment of debt," "accrued liabilities," and "unearned revenues." These are all examples of current liabilities, which are obligations that a company is expected to settle within one year or its operating cycle, whichever is longer. Account payable refers to the amount owed to suppliers for goods or services received but not yet paid for. Notes payable are formal agreements to repay borrowed money. Current installment of debt represents the portion of long-term debt that is due within the next year. Accrued liabilities are expenses that have been incurred but not yet paid. Unearned revenues are payments received in advance for goods or services that have not yet been provided.

Explanation
The correct answer includes various types of long-term liabilities. Notes payable refers to the amount owed by a company to its creditors, usually in the form of a promissory note. Bonds are long-term debt securities issued by a company or government to raise capital. A mortgage is a loan taken out to purchase real estate, with the property serving as collateral. Pension refers to the long-term obligation of a company to provide retirement benefits to its employees. Warranties represent the company's obligation to repair or replace defective products within a specified period. These liabilities are long-term in nature and have a significant impact on a company's financial position.

Explanation
The correct answer includes a list of intangible assets that a company can possess. These assets include copyrights, patents, goodwill, trademarks, and franchise rights. Intangible assets are non-physical assets that have value and can be owned or controlled by a company. These assets are not easily measurable or quantifiable but can contribute significantly to a company's overall value and competitive advantage.

Explanation
The correct answer includes the four sections of stockholders' equity, which are common stock, additional paid-in capital, retained earnings, and company treasury stock. Common stock represents the initial investment made by shareholders, while additional paid-in capital refers to the amount received from shareholders in excess of the stock's par value. Retained earnings represent the accumulated profits of the company that have not been distributed to shareholders as dividends. Lastly, company treasury stock refers to the shares of the company's own stock that it has repurchased.

Explanation
A company may purchase its own stock for several reasons. Firstly, if the stock is valued too low, the company can buy it back to increase its value and show confidence in the business. Secondly, purchasing stock can be used as a way to reward employees through stock options, which can incentivize them and align their interests with the company's success. Lastly, buying back stock can help to raise the company's earnings per share (EPS), as it reduces the number of outstanding shares, thereby increasing the earnings per share ratio.