TRUE/FALSE

1. Business analysis is the evaluation of a companys prospects and risks for the purpose of
making business decisions.

ANS : T REF : Subramanyam edisi 11 chapter 1 hal 4

2. With short-term credit, including bond valuation, creditors require more detailed and
forward-looking analysis.

ANS : F REF : Subramanyam edisi 11 chapter 1 hal 9

3. Comparability problems arise when different companies adopt different accounting for
similar transactions or events.

ANS : T REF : Subramanyam edisi 11 chapter 1 hal 12

4. Two important sources of information on a companys business plan are the Letter to
Shareholders (or Chairpersons Letter) and Managements Discussion and Analysis
(MD&A).

ANS : T REF : Subramanyam edisi 11 chapter 1 hal 15

5. The accounting equation (also called the balance sheet identity) is the basis of the
accounting system: Assets =Liabilities + Equity.

ANS : T REF : Subramanyam edisi 11 chapter 1 hal 19

6. An income statement measures a companys financial performance over a period of time,

typically a year or a quarter.

ANS : T REF : Subramanyam edisi 11 chapter 1 hal 20

7. For index-number trend analysis, we need not analyze every item in financial statements.
ANS : T REF : Subramanyam edisi 11 chapter 1 hal 30
8. Common-size financial statement analysis is useful in understanding the internal makeup
of financial statements.

ANS : T REF : Subramanyam edisi 11 chapter 1 hal 31

9. Cash flow analysis is primarily used as a tool to evaluate the sources and uses of funds.

ANS : T REF : Subramanyam edisi 11 chapter 1 hal 40

10. The efficient market hypothesis, or EMH for short, deals with the reaction of market
prices to financial and other information.

ANS : T REF : Subramanyam edisi 11 chapter 1 hal 44

MULTIPLE CHOICE

1. Suppliers use financial statements in ..

a. Setting credit terms
b. making buy-sell recommendations and in credit rating
c. determining company value in an IPO, merger, or acquisition.
d. labor negotiations

ANS : A REF : Subramanyam edisi 11 chapter 1 hal 6

2. Business analysis and financial statement analysis are important in a number of other
contexts, there are :
a. Regulators
b. Financial management
c. Managers
d. a, b, c are true

ANS: D REF : Subramanyam edisi 11 chapter 1 hal 10

3. Profitability analysis is
a. the evaluation of a companys ability to meet its commitments.
b. the evaluation of a companys return on investment.
c. the uncertainty in financial statement analysis due to accounting distortions.
d. the forecasting of future payoffstypically earnings, cash flows,or both.

ANS: B REF : Subramanyam edisi 11 chapter 1 hal 13

4. Two main sources of external financing are

a. equity investors (also called owners or shareholders)
b. creditors (lenders)
c. a and b
d. none of the above

ANS: C REF : Subramanyam edisi 11 chapter 1 hal 16

5. Investing activities refer to ..

a. companys acquisition and maintenance of investments for purposes of selling
products and providing services, and for the purpose of investing excess cash
b. methods that companies use to raise the money to pay for these needs.
c. companys primary source of earnings

ANS: A REF : Subramanyam edisi 11 chapter 1 hal 18

6. Financing activities refer to ..

a. companys acquisition and maintenance of investments for purposes of selling
products and providing services, and for the purpose of investing excess cash
 b. methods that companies use to raise the money to pay for these needs.
c. companys primary source of earnings

ANS: B REF : Subramanyam edisi 11 chapter 1 hal 16

7. Additional financial information is communicated by companies through the following

sources, for example :
a. Auditor Report
b. Management Report
c. Supplementary Notes
d. Proxy statement
e. All of the above are true

ANS: E REF : Subramanyam edisi 11 chapter 1 hal 27

8. Financial analysis tools include the following:

a. Comparative financial statements

b. Common-size financial statements

c. Ratio analysis

d. Cash flow analysis

e. All of the above are true

ANS: E REF : Subramanyam edisi 11 chapter 1 hal 27

9. To value a security an investor needs:

a. expected future payoffs over the life of the security
b. a discount rate
c. none of the above
d. a,b, c are true

ANS: D REF : Subramanyam edisi 11 chapter 1 hal 40

10. Commons form of EMH are

a. The weak form EMH asserts that prices reflect fully the information contained in
historical price movements.
b. The semistrong form EMH asserts that prices reflect fully all publicly available
information.
c. The strong form EMH asserts that prices reflect all information including inside
information.
d. a,b,c, are true

ANS: D REF : Subramanyam edisi 11 chapter 1 hal 44

MATCHING

A. horizontal analysis

B. Present value theory

C. proxy statement

D. accrual accounting

E. financial assets

F. a ratio or percentage of net earnings

G. Sustainable earning power

H. prospective analysis

I. Investment bankers

1. use financial statements in determining company value in an IPO, merger, or

acquisition.

2. The process of forecasting future payoffs is called .

3. Accounting analysis also includes evaluation of earnings persistence, sometimes called

4. Dividend payout refers to the proportion of earnings distributed. It is often expressed as

5. Also, companies often temporarily or permanently invest excess cash in securities such as
other companies equity stock, corporate and government bonds, and money market
funds. Such assets are called

6. Under , revenues are recognized when a company sells goods or renders

services, regardless of when it receives cash.

7. A . .contains information necessary for shareholders in voting on matters for

which the proxy is solicited.

8. The basis of valuation is .

9. Comparative financial statement analysis also is referred to as ..

1. ANS: I REF : Subramanyam edisi 11 chapter 1 hal 6

2. ANS: H REF : Subramanyam edisi 11 chapter 1 hal 10

3. ANS: G REF : Subramanyam edisi 11 chapter 1 hal 13

4. ANS: F REF : Subramanyam edisi 11 chapter 1 hal 16

5. ANS: E REF : Subramanyam edisi 11 chapter 1 hal 18

6. ANS: D REF : Subramanyam edisi 11 chapter 1 hal 20

7. ANS: C REF : Subramanyam edisi 11 chapter 1 hal 27

8. ANS : B REF : Subramanyam edisi 11 chapter 1 hal 40

9. ANS : A REF : Subramanyam edisi 11 chapter 1 hal 28