FINANCIAL STATEMENT ANALYSIS Volume 4 CFA Institute - Solutions

Unlock the potential of your financial knowledge with our comprehensive resource for "FINANCIAL STATEMENT ANALYSIS Volume 4 CFA Institute." Access our online answers key and solutions manual for a deeper understanding of complex concepts. Download solutions in PDF for solved problems and explore detailed questions and answers that serve as a valuable test bank. Benefit from chapter solutions and instructor manuals, offering step-by-step answers for each textbook challenge. Whether you're preparing for exams or enhancing your professional skills, enjoy free downloads for a seamless learning journey.

Candidate B asks Green if she had additional information on Horizon’s industry peers and competitors, to put the profitability estimates in a richer context. By asking for this additional information for their analysis, Candidate B is most likely seeking to mitigate which behavioral bias?A.
Based on Exhibit 2, forecasted interest expense will reflect changes in Chrome’s debt level under the forecast assumptions used by:A. Candidate A.B. Candidate B.C. Candidate C.
Based on Exhibits 1 and 2, Candidate A’s forecast for SG&A expenses in 2020 is closest to:A. USD23.8 million.B. USD25.5 million.C. USD27.4 million.
Based on Exhibits 1 and 2, Candidate C’s forecast for cost of sales in 2020 is closest to:A. USD18.3 million.B. USD18.9 million.C. USD19.3 million.
Based on Exhibit 2, the modeling approach used by Candidate B to project future net sales is most accurately classified as a:A. hybrid approach.B. top-down approach.C. bottom-up approach.
Based on Exhibit 2, the job candidate most likely using a bottom-up approach to model net sales is:A. Candidate A.B. Candidate B.C. Candidate C.
Based on Exhibit 1, which of the following provides the strongest evidence that Chrome displays economies of scale?A. Increasing net sales B. Profit margins that are increasing with net sales C. Gross profit margins that are increasing with net sales
To validate the forecast for rapid growth in the electronic scooter market over the next 10 years, Fromm speaks to the management of Omikroon and investor relations of ZeroWheel, a competitor. Which behavioral bias is Fromm most likely subject to?A. Confirmation B. Conservatism C. Overconfidence
Fromm’s estimate of growth capital expenditures included in Omikroon’s PP&E under Scenario 1 should be:A. lower than under Scenario 2.B. the same as under Scenario 2.C. higher than under Scenario 2.
Fromm’s sensitivity analysis will result in a decrease in the 2020 base case gross profit margin closest to:A. 0.55 percent.B. 0.80 percent.C. 3.32 percent.
Which factor best justifies the five-year forecast horizon for Omikroon selected by Fromm?A. Factor 1 B. Factor 2 C. Factor 3
Based on Omikroon’s expectations, the gross profit margin of Omikroon’s electric scooter division in 2021 is most likely to be affected by:A. competition.B. research costs.C. cannibalization by petrol scooters.
The metric used by Fromm to assess Omikroon’s performance incorporates:A. the degree of financial leverage.B. operating liabilities relative to operating assets.C. the firm’s competitiveness relative to companies in other tax regimes.
Using Porter’s five forces analysis, which of the following competitive factors is most likely to have the greatest impact on Omikroon’s petrol scooter pricing power?A. Rivalry B. Threat of substitutes C. Threat of new entrants
If the luxury electronic auto equipment industry is subject to rapid technological changes and market share shifts, how should French best adapt his approach to modeling?A. Examine base rates B. Forecast multiple scenarios C. Speak to analysts who hold diverse opinions on the stock
The most appropriate response to Wright’s question about the technological development is to:A. increase the required return.B. decrease the perpetual growth rate.C. decrease the price-to-earnings multiple.
French’s approach to forecasting Archway’s working capital accounts would be most likely classified as a:A. hybrid approach.B. top-down approach.C. bottom-up approach.
Based on Exhibit 2, Archway’s forecasted gross profit margin for 2020 is closest to:A. 62.7 percent.B. 67.0 percent.C. 69.1 percent.
Based on the current competitive landscape presented in Exhibit 1, Archway’s operating profit margins over the forecast horizon are least likely to:A. decrease.B. remain constant.C. increase.
Based on the current competitive landscape presented in Exhibit 1, French should conclude that Archway’s ability to:A. pass along price increases is high.B. demand lower input prices from suppliers is low.C. generate above-average returns on invested capital is low.
Which profitability metric should French use to assess Archway’s five-year historic performance relative to its competitors?A. Current ratio B. Operating margin C. Return on invested capital
LinkedIn, operator of an online social network for professionals and part of Microsoft Corporation, with limited investment needs and no debt A. Facebook, another online social network, announces a plan to enhance its offerings in the professional category.B. Regulators announce an investigation of
Grupo Aeroportuario del Sureste, operator of nine airports in Mexico, especially in the tourist-heavy southeast A. Global economic disruption has caused a sharp decline in international travel.B. Regulators will allow the construction of a new airport by a competitor in Grupo Aeroportuario del
Abbott Laboratories, a diversified manufacturer of health care products, including medical devices A. Management reiterates its long-standing approach to capital deployment.B. A competitor has demonstrated favorable efficacy data on a medical device candidate that will compete with an important
ABC Diesel (hypothetical company), a manufacturer of diesel-power trucks A. Consumers have started switching to trucks with electric engines, threatening ABC’s historic strength in diesel engine trucks.B. ABC Diesel has formed a partnership with Electrico (hypothetical), a company involved in
Turkish Airlines (THYAO.IS) operates in the highly cyclical global airline industry. Operating margins for 2011–2019 are shown in the following table and in the Example 10 worksheet in the downloadable Microsoft Excel workbook.On the basis of only the information in the table, which of the
Assume inflation of 10 percent only for the raw material costs (reflected in COGS) and that the companies are not able to pass on this increase through higher prices. Which company will be more affected negatively in terms of gross profit margin and operating profit margin?
Calculate the operating profit margin for each company. Which company will experience the greater reduction in operating profit (EBIT) margin?
Calculate the gross profit margin for each company. Which company will experience the greater reduction in gross profit margin?
Which analyst has the highest forecast for gross profit?
Which analyst has the highest forecast for gross margin?
What are each analyst’s predictions for gross profit and gross margin?
Retailers are the direct customers of brewers. They buy directly from the brewer and sell to the ultimate consumer. Analyst A expects that the increase in mass retailers in Eurolandia will cause brewers’ margins to decline.He expects EuroAlco’s operating margin will decrease from 13 percent in
EuroAlco’s selling expenses increased from 30 percent of sales in 20X1 to 33.5 percent of sales in 20X2. Which competitive forces most likely influenced EuroAlco’s significant increase in selling expenses?
Gross margin improved in 20X1 (50.0 percent) but fell in 20X2 (48.8 percent). Cost of sales was relatively high in 20X2 because of high barley costs, an important ingredient for brewing beer. Assume that in 20X2, half of the cost of sales is fixed and half is based on volume. Of the variable part
Analyst B expects price elasticity of 0.5, indicating that volume will fall by 5 percent given the 10 percent retail price increase. Calculate the impact on operating profit and operating profit margin in 20X3 using Exhibit 22, which is also in the Example 7 sheet in the downloadable Microsoft
Evaluate the base case forecasts in the Rémy model as well as Rémy’s management’s FY2030 objective of a 33 percent operating margin considering the analysis in Exhibit 16.
What behavioral bias does your colleague’s suggestion exhibit, and what research or steps should be taken, if any, with respect to revising the Rémy model? Explain your answer.
When developing forecasts, analysts should most likely:A. develop possibilities relying exclusively on the results of financial analysis.B. aim to develop extremely precise forecasts using the results of financial analysis.C. use the results of financial analysis, analysis of other information, and
A decomposition of ROE for Company A and Company B is as follows:Exhibit 1: ROE for Company A and Company B Company A Company B FY15 FY14 FY15 FY14 ROE 26.46% 18.90% 26.33% 18.90%Tax burden 0.7 0.75 0.75 0.75 Interest burden 0.9 0.9 0.9 0.9 EBIT margin 7.00% 10.00% 13.00% 10.00%Asset turnover 1.5
A decomposition of ROE for Integra SA is as follows:Which of the following choices best describes reasonable conclusions an analyst might make based on this ROE decomposition?A. Profitability and the liquidity position both improved in FY12.B. The higher average tax rate in FY12 offset the
An analyst compiles the data in Exhibit 1 for a company:Exhibit 1: Net Profit Margin FY13 FY14 FY15 ROE 19.8% 20.0% 22.0%Return on total assets 8.1% 8.0% 7.9%Total asset turnover 2.0 2.0 2.1 Based only on the information above, the most appropriate conclusion is that, over the period FY13 to FY15,
Which of the following choices best describes reasonable conclusions an analyst might make about the company’s profitability?A. Comparing FY14 with FY10, the company’s profitability improved, as indicated by an increase in its debt-to-assets ratio from 0.14 to 0.27.B. Comparing FY14 with FY10,
Which of the following choices best describes reasonable conclusions an analyst might make about the company’s liquidity?A. Comparing FY14 with FY10, the company’s liquidity improved, as indicated by an increase in its current ratio from 0.71 to 0.75.B. Comparing FY14 with FY10, the company’s
Which of the following choices best describes reasonable conclusions an analyst might make about the company’s solvency?A. Comparing FY14 with FY10, the company’s solvency improved, as indicated by the growth in its profits to GBP 645 million.B. Comparing FY14 with FY10, the company’s
The company’s total assets at year-end FY9 were GBP3,500 million. Which of the following choices best describes reasonable conclusions an analyst might make about the company’s efficiency?A. Comparing FY14 with FY10, the company’s efficiency deteriorated, as indicated by its current ratio.B.
An analyst observes the data in Exhibit 1 for two companies:Which of the following choices best describes reasonable conclusions that the analyst might make about the two companies’ ability to pay their current and long-term obligations?A. Company A’s current ratio of 4.0 indicates it is more
What would be the most reasonable explanation of the financial data?A. The decline in the company’s equity results from a decline in the market value of this company’s common shares.B. The EUR250 increase in the company’s debt from FY3 to FY5 indicates that lenders are viewing the company as
Which of the following would be the analyst’s most likely conclusion?A. The company is becoming less liquid, as evidenced by the increase in its debt-to-equity ratio from 0.35 to 0.50 from FY3 to FY5.B. The company is becoming increasingly more liquid, as evidenced by the increase in its
To assess a company’s ability to fulfill its long-term obligations, an analyst would most likely examine:A. activity ratios.B. liquidity ratios.C. solvency ratios
Based on the data in Exhibit 1, what is the analyst least likely to conclude?A. Inventory management has contributed to improved liquidity.B. Management of payables has contributed to improved liquidity.C. Management of receivables has contributed to improved liquidity.
Brown Corporation had average days of sales outstanding of 19 days in the most recent fiscal year. Brown wants to improve its credit policies and collection practices and decrease its collection period in the next fiscal year to match the industry average of 15 days. Credit sales in the most recent
Which of the following would best explain an increase in receivables turnover?A. The company adopted new credit policies last year and began offering credit to customers with weak credit histories.B. Due to problems with an error in its old credit scoring system, the company had accumulated a
An analyst observes a decrease in a company’s inventory turnover. Which of the following would most likely explain this trend?A. The company installed a new inventory management system, allowing more efficient inventory management.B. Due to problems with obsolescent inventory last year, the
Comparison of a company’s financial results to other peer companies for the same time period is called:A. time-series analysis.B. common-size analysis.C. cross-sectional analysis.
Which of the following choices best describes reasonable conclusions an analyst might make about the companies’ efficiency?A. In FY5, Anson’s DOH of only 4.76 indicated that it was less efficient at inventory management than Clarence, which had DOH of 39.73.B. Over the past four years, Anson
Assuming no changes in other variables, which of the following would decrease ROA?A. An increase in average assets B. A decrease in interest expense C. A decrease in the effective tax rate
Which of the following ratios would be most useful in determining a company’s ability to cover its lease and interest payments?A. ROA B. Total asset turnover C. Fixed charge coverage
Which ratio would a company most likely use to measure its ability to meet short-term obligations?A. Current ratio B. Payables turnover C. Gross profit margin
What is the discernable trend over the three years?
What are the company’s debt-to-assets, debt-to-capital, and debt-to-equity ratios for the three years?
Interpret the financial leverage ratio calculated in question 1,?
Calculate the company’s financial leverage ratios for 2016 and 2017.
On 15 July, an analyst is examining a company with a fiscal year ending on 31 December. Use the following data to calculate the company’s TTM earnings (for the period ended 30 June 2018):■ Earnings for the year ended 31 December 2017: USD1,200;■ Earnings for the six months ended 30 June 2017:
Explain what this ratio is measuring and compare the results reported for each of the years shown in the chart. What other information might an analyst want to review before making any conclusions on this information?
How do the companies compare, based on profitability?
Which company is larger based on the amount of revenue, in US dollars, reported in fiscal year 2017? For FY2017, assume the relevant, average exchange rate was 30.95 TWD/USD.
An analyst reviewing a firm with a large reported restructuring charge to earnings should:A. view expenses reported in prior years as overstated.B. disregard it because it is solely related to past events.C. consider making pro forma adjustments to prior years’ earnings.
Which of the following would most likely signal that a company may be using aggressive accrual accounting policies to shift current expenses to later periods?Over the last five-year period, the ratio of cash flow to net income has:A. increased each year.B. decreased each year.C. fluctuated from
Which of the following is an indication that a company may be recognizing revenue prematurely? Relative to its competitors, the company’s:A. asset turnover is decreasing.B. receivables turnover is increasing.C. days sales outstanding is increasing.
Bias in revenue recognition would least likely be suspected if:A. the firm engages in barter transactions.B. reported revenue is higher than the previous quarter.C. revenue is recognized before goods are shipped to customers.
Which technique most likely increases the cash flow provided by operations?A. Stretching the accounts payable credit period B. Applying all non-cash discount amortization against interest capitalized C. Shifting classification of interest paid from financing to operating cash flows
A company wishing to increase earnings in the reporting period may choose to:A. decrease the useful life of depreciable assets.B. lower estimates of uncollectible accounts receivables.C. classify a purchase as an expense rather than a capital expenditure.
If a company uses a non-GAAP financial measure in an SEC filing, then the company must:A. give more prominence to the non-GAAP measure if it is used in earnings releases.B. provide a reconciliation of the non-GAAP measure and equivalent GAAP measure.C. exclude charges requiring cash settlement from
An audit opinion of a company’s financial reports is most likely intended to:A. detect fraud.B. reveal misstatements.C. ensure that financial information is presented fairly.
Which of the following best describes an opportunity for management to issue low-quality financial reports?A. Ineffective board of directors B. Pressure to achieve some performance level C. Corporate concerns about financing in the future
Which of the following situations will most likely motivate managers to inflate reported earnings?A. Possibility of bond covenant violation B. Earnings that have exceeded analysts’ forecasts C. Earnings that have grown from the prior-year period
Which of the following situations represents a motivation, rather than an opportunity, to issue low-quality financial reports?A. Poor internal controls B. Search for a personal bonus C. Inattentive board of directors
A company is experiencing a period of strong financial performance. To increase the likelihood of exceeding analysts’ earnings forecasts in the next reporting period, the company would most likely undertake accounting choices for the period under review that:A. inflate reported revenue.B. delay
Which of the following conditions best explains why a company’s manager would obtain legal, accounting, and board level approval prior to issuing low-quality financial reports?A. Motivation B. Opportunity C. Rationalization
Which of the following concerns would most likely motivate a manager to make conservative accounting choices?A. Attention to future career opportunities B. Debt covenant violation risk in the current period C. Unexpected strength in the business environment
Which of the following statements most likely describes a situation that would motivate a manager to issue low-quality financial reports? The manager has:A. increased the market share of products significantly.B. earned compensation that is linked to stock price performance.C. brought the
Which of the following is most likely to be considered a potential benefit of accounting conservatism?A. A reduction in litigation costs B. Less biased financial reporting C. An increase in current period reported performance
Conservative accounting choices will most likely lead to:A. decreased reported earnings in later periods.B. increased reported earnings in the period under review.C. increased debt reported on the balance sheet at the end of the current period.
If a particular accounting choice is considered aggressive in nature, then the financial performance for the reporting period would most likely:A. be neutral.B. exhibit an upward bias.C. exhibit a downward bias.
A high-quality financial report may reflect:A. earnings smoothing.B. low earnings quality.C. understatement of asset impairment.
When earnings are increased by deferring research and development (R&D)investments until the next reporting period, this choice is considered:A. non-compliant accounting.B. earnings management as a result of a real action.C. earnings management as a result of an accounting choice.
Financial reports of the lowest level of quality reflect:A. fictitious events.B. biased accounting choices.C. accounting that is non-compliant with GAAP.
Which attribute of financial reports would most likely be evaluated as optimal in the financial reporting spectrum?A. Conservative accounting choices B. Sustainable and adequate returns C. Emphasized pro forma earnings measures
Earnings that result from non-recurring activities most likely indicate:A. lower-quality earnings.B. biased accounting choices.C. lower-quality financial reporting.
Low quality earnings most likely reflect:A. low-quality financial reporting.B. company activities which are unsustainable.C. information that does not faithfully represent company activities.
To properly assess a company’s past performance, an analyst requires:A. high earnings quality.B. high financial reporting quality.C. both high earnings quality and high financial reporting quality.
The information provided by a low-quality financial report will most likely:A. decrease company value.B. indicate earnings are not sustainable.C. impede the assessment of earnings quality.
In contrast to earnings quality, financial reporting quality most likely pertains to:A. sustainable earnings.B. relevant information.C. adequate return on investment.
Compare cost of goods sold and gross profit calculated under the two methods.
What are the ending inventory and cost of goods sold if the company uses the weighted-average method of inventory costing?
What are the ending inventory and cost of goods sold if the company uses the FIFO method of inventory costing?
For 2010, how did results under the revised non-GAAP metric compare with the originally reported metric?
In the first quarter of 2011, what was the effect of excluding online marketing expenses on the calculation of adjusted CSOI?
Groupon excludes “online marketing” from adjusted CSOI. How does the exclusion of this expense compare with the SEC’s limits on non-GAAP performance measures?

Showing 1 - 100 of 1960

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Last

FINANCIAL STATEMENT ANALYSIS Volume 4 CFA Institute - Solutions

Step by Step Answers