Tag: analysis of financial statements

Questions Related to analysis of financial statements

NPV of a proposal, as calculated under Risk Adjusted Discount Rate(RADR) & Real Certainty Equivalent(CE) Approach will be __________.

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  1. Same

  2. Unequal

  3. Both A and B

  4. None of A and B

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Correct Option: B

What factors increase the riskiness of  a Capital budgeting Project?

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  1. Industry specific risk factors

  2. Competition risk factors

  3. Project specific risk factors

  4. All of the above

Show answer
Correct Option: D
Explanation:

The factors that increase riskiness of a capital budgeting project are industry specific risk, competition risk and project risk. Industry specific risk/market risk are the risks that might occur due to change in the industry, competition risks are the risk that can occur because of the competitors strategy and lastlyt project risk are the risk that are associated with the project as whether or not the project will be profitable or not. 

Risk-aversion of an investor can be measured by______________.

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  1. Market Rate of Return

  2. Risk-free Rate of Return

  3. Portfolio Return

  4. None of the above

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Correct Option: D
Explanation:

Risk aversion means the tendency of a person to avoid a decision/investment when there is risk involved. Risk aversion is a personal trait of a person. Risk-aversion of an investor cannot be measured by market rate of return, risk free rate of return or portfolio profit. 

For calculating trend percentage, which of the following formula is used? 

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  1. (Present year value/Base year value) x 100

  2. (Base year value/Present year value) x 100

  3. (Present year value/100) x Base year value

  4. (Base year value/100) x Present year value

Show answer
Correct Option: A
Explanation:

Generally the first year is taken as the base year. The figure of base year is taken as 100. Trend percentage is calculated by following formula:

(Present year value/Base year value) x 100

The most commonly used tools for financial analysis are _______________.

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  1. Horizontal analysis

  2. Vertical analysis

  3. Ratio analysis

  4. All of the above

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Correct Option: D
Explanation:

Commonly used tools of financial analysis are: Comparative statements, Common size statements, trend analysis, ratio analysis, funds flow analysis, and cash flow analysis.

Select the correct statement.

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  1. General reserve is created out of divisible profits

  2. General reserve is used for some specified purposes

  3. Revenue reserve include capital reverse also

  4. All the three

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Correct Option: A
Explanation:

General reserve is created out of divisible profits. This is the only true statement. General reserve is created to meet any future uncertainties, they are basically the retained earnings of the company.  

Which of the following statements are false?
A) When all the figures in a balance sheet are stated as percentage of the total, it is termed as horizontal analysis. 
B) When financial statements of several years are analyzed, it is termed as vertical analysis. 
C) Vertical Analysis is also termed as dynamic analysis. 

trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

  1. Both A and B

  2. Both A and C

  3. Both B and C

  4. A, B and C

Show answer
Correct Option: B
Explanation:
Statements are A and C are false. 
A) False. When all figures in the balance sheet are stated as percentage of the total, its termed as vertical or common-size analysis. 
C) False. Horizontal analysis is termed as dynamic analysis. Vertical analysis is done to review and analysis the financial statements for a year only and therefore it is also called static analysis.

A company discloses the following information in relation to its receivables in the notes to its financial statements.
Gross amount receivable - Rs. 4,800
Provision for doubtful debts - Rs. 360
Net Carrying amount of receivable - Rs. 4,400
Which one of the following is the maximum credit risk that it must also disclose in the notes to comply with IFRS 7?

trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

  1. Rs. 360

  2. Rs. 4,400

  3. Rs. 4,800

  4. No disclosure is required

Show answer
Correct Option: D

A firm has an Return on Assets (ROA) of 14%, a debt/equity ratio of 0.8, a tax rate of 35%, and the interest rate on the debt is 10%. What is the firm's Return on Equity (ROE)? 

trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

  1. 11.18%

  2. 8.97%

  3. 11.54%

  4. 12.62%

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Correct Option: A

A has $Rs. 3,500$ due from B. On January $20$, B makes a partial payment of $Rs. 2,100$ to A. The journal entry made on January $20$ by A to record this transaction include_________.

book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

  1. A credit to the cash received account of $Rs. 2,100$

  2. A credit to B's account of $Rs. 2,100$

  3. A debit to the cash account of $Rs. 1,400$

  4. A debit to B's account of $Rs. 1,400$

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Correct Option: B