Financial Statement Analysis For CFA Level 1

A balance sheet provides a detailed listing of a company's assets, liabilities, and equity at a point in time. This provides a glimpse at a company's financial condition.

All other responses qualify as cash flows from financing activities.

Goodwill is defined as the price paid in excess of the fair market value of the assets of the target firm. Under US GAAP, only Goodwill generated during acquisitions is capitalized; it does not allow capitalization of internally generated Goodwill.

Accumulated Depreciation is a contra account to the fixed asset account(s)

An income statement measures a company's financial performance over a specified period of time. This statement accurately describes the purpose and function of an income statement. It provides a summary of the company's revenues, expenses, and net income or loss during a specific period, typically a month, quarter, or year. By analyzing the income statement, stakeholders can evaluate the company's profitability and assess its financial health.

150 operating cash flow 150. = net income + noncash expenses - non-cash revenues = 200 + 55 - 30 - 25 = 200

Providing stockholders with a return on their investment in the form of a cash dividend is a financing activity.

All responses qualify as cash inflows from investing activities.

The net realizable value of the accounts receivable is equal to the total amount receivable less an allowance for uncollectible items. In practice, companies report accounts receivable at their net realizable value.

An adverse opinion is rendered in cases where financial statements are not prepared in accordance with accepted accounting principles, and this has a material effect on the fair presentation of the statements.

Notes payable represents a liability that originates from financing activities. Liabilities that arise from financing activities typically require compensation in the form of interest. This can be contrasted with liabilities that arise from operating activities where interest bearing credit is not being extended but the liability arises from the "normal course of business".

These references do not constitute a disclaimer or a qualified or adverse opinion, therefore, the language refers to an unqualified opinion.

Land is not subject to any depreciation. The useful life of land does not diminish over time as its economic value does not diminish based on use.

The basis EPS formula aims to derive earnings per share of common stock for the amount of the year that the common shares were outstanding. It is for this reason that preferred dividends are not included and the weighted average numbers of common shares outstanding are used in the denominator.

Any undistributed net income during a period is swept into the "retained earnings" account.

A stock split does not involve any accounting entries. Instead, a larger number of new shares are issued to replace and retire all outstanding shares.

Since the capitalized expense represents an investing cash outflow, the investing cash flow is lower for A. Firm B charges all the expenditure to operating cash flow and has a lower operating cash flow than A.

Revenue is generally recognized when it is realizable and earned.

It is very important to remember the following points about dividends and interests:
• Dividends received from stock investments are considered operating cash flows.
• Dividends paid on equity are considered financing cash flows.
• Interest payments on debt are considered operating cash flows.
• Interest received from debt investments are considered operating cash flows.

The treasury stock method assumes the exercise of outstanding options and warrants at the beginning of the period or at time of issuance, if later. It also assumes that the proceeds from the exercise were used to purchase common stock at the average market price during the period.