ANALYZING FINANCIAL REPORTS WALL STREET PREP
LATEST COMPLETE REAL EXAM QUESTIONS AND
CORRECT VERIFIED ANSWERS LATEST UPDATES |
ASSURED SUCCESS
Earning Per Share - ANSWER: Profit/# Shares
As shares increase, EPS drops. As shares decrease, EPS increases
Return on Equity - ANSWER: ROE = Profit/Equity
As ROE increases, equity decreases
Return on Assets - ANSWER: ROA = (Profit/Sales) x (Sales/Assets)
Financial Statements - ANSWER: They show there is money in the bank and whether
it will be enough to pay suppliers, employees, banks, whether you are under or over
paying for expenditures, whether there is enough inventory to satisfy future sales,
and if you are making sales and losing money or making sales and making money
Types of Financial Statements - ANSWER: balance sheet, income statement, cash
flow statement, shareholders' equity statement, notes
Types of narrative reports - ANSWER: Management's Letter, Auditors Report
Balance sheet - ANSWER: Snapshot of the financial position of the business at a
particular point in time
List of all the business' resources (assets) and the financing of those resources
(liabilities and equity)
Assets - ANSWER: Investments that are expected to generate payoffs
Assets = liabilities + equity
Liabilities - ANSWER: Claims to the payoffs by claimants other than owners. Money
that has been borrowed by the business
Equity - ANSWER: Claim by the owners, the money invested in the business by the
owners
Always equal to the difference between assets and liability (net assets)
Assets - liabilities = equity
,Non-current assets - ANSWER: long term assets and which are intended for use on a
continuing basis in the company's activities
Land, PPE, intangible assets (patents, licences, software), long term investments
(debt and equity securities)
Held by an entity for use in the production or supply of goods or services, for rental
to others, or for admin purposed; and are expected to be used during more than one
period
Non-current liabilities - ANSWER: Long term funding (more than a year)
Long-term loans, bonds with maturity over a year
Provisions: liabilities for which the timing and the amount of the obligation are
uncertain (e.g. settlement of legal disputes)
Current assets - ANSWER: Day to day assets
Cash or other assets that are reasonably expected to be realized in cash or
consumed within one year
Inventory, trade receivables (money owned by clients arising from past sales made
to clients on credit), cash and cash equivalents, short-term investments, prepaid
expenses (money paid in advance by the business for expenses that will incur in the
future)
Current liabilities - ANSWER: Day to day funding
Trade payables (money the business owes to its suppliers arising from past
purchases on credit), accrued expenses (money the business owes for unpaid
expenses that it incurred during the current accounting period: e.g., salaries payable,
interest payable, income taxes payable), services expected to be performed (e.g.,
advance payments from customers), cash overdraft (short term loan from the bank
to the business), current portion of long-term debts
Asset recognition - ANSWER: probable economic benefits: sufficient evidence that
future benefits will flow to the firm
Measured with reliability: measurability of future benefits can be performed with
sufficient reliability
Liability recognition - ANSWER: Sufficient eveident of transfer of benefits
Future transfer of benefits can be measured with sufficient reliability
Equity components - ANSWER: Share capital (capital paid in by owners), share
premium (additional capital paid in by new shareholders), treasury stock (own
capital of the company), retained profits (profits which the company has made but
, has not yet paid out as a dividend to shareholders), reserves (capital and retained
profits accumulated)
Income Statement - ANSWER: Summary of the financial position of the business over
one reporting period
Statement of flows - it reports how equity (shareholder's wealth) increased or
decreased as a result of business activities
Based on accrual accounting - provides information on generation and consumption
of economic resources rather than on cash generations and expenditures
Profit/loss - ANSWER: Profit/loss = revenue - expenses
Bottom line measure of value added/lost to equity is net profit/loss
Types of revenues - ANSWER: Sales of products or services
Non operating: financial investments (interest income), profit from selling non-
current assets (buildings, equipment)
Types of expenses - ANSWER: Costs of goods sold
Operating expenses: admin costs, marketing, distribution, R&D, depreciation
Non operating expenses: finance costs (interest expense), loss from selling non-
current assets
Accrual Principle - ANSWER: Revenue is recognised when it is earner and expenses
when they are incurred, rather than when money is received or paid.
Expenses should be matched to the revenue that they helped generate
Gross profit - ANSWER: Profit from producing and selling
= sales revenue - COGS
Operating expenses - ANSWER: Costs incurred in generating revenues (salaries,
advertising, distribution, depreciation, overhead)
Operating profit (EBIT) - ANSWER: Profit that remains after removing operating
expenses from gross profit
Net profit - ANSWER: Profit that remains after removing non-operating expenses and
adding non-operating income from operating profit
Breakdown equity - ANSWER: = [capital & other equity + profit]
= [capital & other equity + (revenue - expenses)
Profit retention - ANSWER: Profit should be transferred from the income statement
to the balance sheet
LATEST COMPLETE REAL EXAM QUESTIONS AND
CORRECT VERIFIED ANSWERS LATEST UPDATES |
ASSURED SUCCESS
Earning Per Share - ANSWER: Profit/# Shares
As shares increase, EPS drops. As shares decrease, EPS increases
Return on Equity - ANSWER: ROE = Profit/Equity
As ROE increases, equity decreases
Return on Assets - ANSWER: ROA = (Profit/Sales) x (Sales/Assets)
Financial Statements - ANSWER: They show there is money in the bank and whether
it will be enough to pay suppliers, employees, banks, whether you are under or over
paying for expenditures, whether there is enough inventory to satisfy future sales,
and if you are making sales and losing money or making sales and making money
Types of Financial Statements - ANSWER: balance sheet, income statement, cash
flow statement, shareholders' equity statement, notes
Types of narrative reports - ANSWER: Management's Letter, Auditors Report
Balance sheet - ANSWER: Snapshot of the financial position of the business at a
particular point in time
List of all the business' resources (assets) and the financing of those resources
(liabilities and equity)
Assets - ANSWER: Investments that are expected to generate payoffs
Assets = liabilities + equity
Liabilities - ANSWER: Claims to the payoffs by claimants other than owners. Money
that has been borrowed by the business
Equity - ANSWER: Claim by the owners, the money invested in the business by the
owners
Always equal to the difference between assets and liability (net assets)
Assets - liabilities = equity
,Non-current assets - ANSWER: long term assets and which are intended for use on a
continuing basis in the company's activities
Land, PPE, intangible assets (patents, licences, software), long term investments
(debt and equity securities)
Held by an entity for use in the production or supply of goods or services, for rental
to others, or for admin purposed; and are expected to be used during more than one
period
Non-current liabilities - ANSWER: Long term funding (more than a year)
Long-term loans, bonds with maturity over a year
Provisions: liabilities for which the timing and the amount of the obligation are
uncertain (e.g. settlement of legal disputes)
Current assets - ANSWER: Day to day assets
Cash or other assets that are reasonably expected to be realized in cash or
consumed within one year
Inventory, trade receivables (money owned by clients arising from past sales made
to clients on credit), cash and cash equivalents, short-term investments, prepaid
expenses (money paid in advance by the business for expenses that will incur in the
future)
Current liabilities - ANSWER: Day to day funding
Trade payables (money the business owes to its suppliers arising from past
purchases on credit), accrued expenses (money the business owes for unpaid
expenses that it incurred during the current accounting period: e.g., salaries payable,
interest payable, income taxes payable), services expected to be performed (e.g.,
advance payments from customers), cash overdraft (short term loan from the bank
to the business), current portion of long-term debts
Asset recognition - ANSWER: probable economic benefits: sufficient evidence that
future benefits will flow to the firm
Measured with reliability: measurability of future benefits can be performed with
sufficient reliability
Liability recognition - ANSWER: Sufficient eveident of transfer of benefits
Future transfer of benefits can be measured with sufficient reliability
Equity components - ANSWER: Share capital (capital paid in by owners), share
premium (additional capital paid in by new shareholders), treasury stock (own
capital of the company), retained profits (profits which the company has made but
, has not yet paid out as a dividend to shareholders), reserves (capital and retained
profits accumulated)
Income Statement - ANSWER: Summary of the financial position of the business over
one reporting period
Statement of flows - it reports how equity (shareholder's wealth) increased or
decreased as a result of business activities
Based on accrual accounting - provides information on generation and consumption
of economic resources rather than on cash generations and expenditures
Profit/loss - ANSWER: Profit/loss = revenue - expenses
Bottom line measure of value added/lost to equity is net profit/loss
Types of revenues - ANSWER: Sales of products or services
Non operating: financial investments (interest income), profit from selling non-
current assets (buildings, equipment)
Types of expenses - ANSWER: Costs of goods sold
Operating expenses: admin costs, marketing, distribution, R&D, depreciation
Non operating expenses: finance costs (interest expense), loss from selling non-
current assets
Accrual Principle - ANSWER: Revenue is recognised when it is earner and expenses
when they are incurred, rather than when money is received or paid.
Expenses should be matched to the revenue that they helped generate
Gross profit - ANSWER: Profit from producing and selling
= sales revenue - COGS
Operating expenses - ANSWER: Costs incurred in generating revenues (salaries,
advertising, distribution, depreciation, overhead)
Operating profit (EBIT) - ANSWER: Profit that remains after removing operating
expenses from gross profit
Net profit - ANSWER: Profit that remains after removing non-operating expenses and
adding non-operating income from operating profit
Breakdown equity - ANSWER: = [capital & other equity + profit]
= [capital & other equity + (revenue - expenses)
Profit retention - ANSWER: Profit should be transferred from the income statement
to the balance sheet
