Financial Statement Analysis
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Questions and Answers

What is the main purpose of the Cash Flow Statement?

  • To calculate a company's financial ratios
  • To report the changes in a company's cash and cash equivalents (correct)
  • To analyze a company's liquidity position
  • To evaluate a company's profitability

    • What is the result of the Cash Flow from Financing activities?

  • Depreciation and amortization
  • Net income after tax
  • Cash received from issue of shares or debt and borrowing minus cash paid for dividend, repaying short and long-term borrowing and reacquisition of debt or capital (correct)
  • Cash flow from operating activities

    • What is the purpose of adjusting for non-operating gains and losses in the Cash Flow Statement?

  • To exclude non-cash items from the cash flow statement (correct)
  • To recognize gains and losses from non-operating activities
  • To increase the company's net income
  • To reduce the company's income tax liability

    • What is the classification of the Cash Flow Statement that includes dividends paid and repayment of debt?

    <p>Cash Flow from Financing Activities</p> Signup and view all the answers

    What is the purpose of the Cash Flow Statement in financial analysis?

    <p>To analyze a company's liquidity position and ability to generate cash</p> Signup and view all the answers

    What does the statement of cash flows help the financial manager/bankers to assess?

    <p>A company's ability to generate future net cash inflows from operations</p> Signup and view all the answers

    What is the main purpose of segregating cash inflows and outflows into three broad categories?

    <p>To identify the reasons for differences between net income and net cash flow from operating activities</p> Signup and view all the answers

    Which of the following is NOT a category of activities in the statement of cash flows?

    <p>Dividend activity</p> Signup and view all the answers

    What does the statement of cash flows explain?

    <p>Changes in a company's cash and cash equivalents</p> Signup and view all the answers

    What is the primary revenue-producing activity listed in the statement of cash flows?

    <p>Operating activity</p> Signup and view all the answers

    What is the purpose of the Cash Flow from Investing Activities section in the Cash Flow Statement?

    <p>To report investments made in property, plant, and equipment, and other non-current assets</p> Signup and view all the answers

    What is the result of combining the Net Cash Flow from Operating, Investing, and Financing Activities?

    <p>The change in a company's cash balance over a period of time</p> Signup and view all the answers

    What type of financing is represented by an increase in Long-term Loans/Bonds Payable?

    <p>Debt financing</p> Signup and view all the answers

    What is the purpose of the Cash Flow from Financing Activities section in the Cash Flow Statement?

    <p>To report changes in a company's cash position due to financing activities, such as borrowing and repayment of loans</p> Signup and view all the answers

    What is the relationship between the Opening Cash & Bank Balance and the Cash Balance on hand at the end of the year?

    <p>The Opening Cash &amp; Bank Balance is added to the Cash Balance on hand at the end of the year</p> Signup and view all the answers

    What is the implication of a positive net financing cash flow if it is the result of excessive borrowing?

    <p>It will have an adverse effect on the debt-equity ratio and debt servicing capacity of the firm.</p> Signup and view all the answers

    What is the primary concern of a credit analyst when analyzing a firm's cash flow profile?

    <p>Understanding the tradeoff between tax advantages and bankruptcy costs.</p> Signup and view all the answers

    What does a negative net financing cash flow indicate?

    <p>The firm has repaid existing loans or distributed more dividends.</p> Signup and view all the answers

    What is the primary consideration when evaluating a firm's capital expenditure in line with its business strategy?

    <p>Consistency of capital expenditure.</p> Signup and view all the answers

    What is the significance of a positive net financing cash flow if it is the result of an increase in equity capital?

    <p>It is a sign of a healthy financial position.</p> Signup and view all the answers

    What is the result of Cash Flow from Operations?

    <p>Cash received from sale of goods and services minus cash paid for operations and goods &amp; services</p> Signup and view all the answers

    What is the purpose of the investing activity in the Cash Flow Statement?

    <p>To record the acquiring and disposing activities of long term assets and investments</p> Signup and view all the answers

    What is an example of a cash outflow from financing activity?

    <p>Cash paid to repay debt</p> Signup and view all the answers

    What is an example of a cash inflow from operating activity?

    <p>Cash received from selling goods and services</p> Signup and view all the answers

    What is an example of a cash outflow from operating activity?

    <p>Cash paid to pay suppliers for inventory</p> Signup and view all the answers

    What is the total value of Assets of Sohana Ltd. as at December 31, 2019?

    <p>Tk. 277,000</p> Signup and view all the answers

    What is the value of Plant Assets sold during the year ended December 31, 2019?

    <p>Tk. 62,500</p> Signup and view all the answers

    What is the value of Bonds redeemed at face value during the year ended December 31, 2019?

    <p>Tk. 60,000</p> Signup and view all the answers

    What is the value of Cash Dividends declared and paid during the year ended December 31, 2019?

    <p>Tk. 8,500</p> Signup and view all the answers

    What is the value of Additional Equipment purchased during the year ended December 31, 2019?

    <p>Tk. 60,000</p> Signup and view all the answers

    What is the value of Total Liabilities and Equity of Sohana Ltd. as at December 31, 2019?

    <p>Tk. 283,500</p> Signup and view all the answers

    What is the value of Accrued Expenses of Sohana Ltd. as at December 31, 2019?

    <p>Tk. 13,000</p> Signup and view all the answers

    What is the value of Retained Earnings of Sohana Ltd. as at December 31, 2019?

    <p>Tk. 123,000</p> Signup and view all the answers

    What is the value of Cost of Goods Sold of Sohana Ltd. for the year ended December 31, 2019?

    <p>Tk. 500,000</p> Signup and view all the answers

    What is the total net cash flow from operating activities?

    <p>Tk. 128,500</p> Signup and view all the answers

    What does a large amount of positive net operating cash flows indicate?

    <p>Economic viability of a firm</p> Signup and view all the answers

    What is the main reason behind negative net operating cash flows?

    <p>Increase in inventory and account receivable</p> Signup and view all the answers

    What is the total cash sales collection from credit sales?

    <p>Tk. 1,024,000</p> Signup and view all the answers

    What is the ending cash balance on hand?

    <p>Tk. 42,900</p> Signup and view all the answers

    What is the primary concern of a short-term creditor when evaluating a loan?

    <p>The borrower's ability to pay obligations when they come due</p> Signup and view all the answers

    What is the primary emphasis of a bondholder when evaluating a company?

    <p>Profitability and solvency</p> Signup and view all the answers

    What is the primary objective of financial statement analysis?

    <p>To evaluate the company's past performance and current financial position</p> Signup and view all the answers

    What is the primary purpose of analyzing an income statement and balance sheet?

    <p>To assess a company's financial health</p> Signup and view all the answers

    What is the primary focus of stockholders when assessing a company?

    <p>Profitability and solvency</p> Signup and view all the answers

    What is the primary objective of sensitivity analysis in project financial appraisal?

    <p>To identify the project's most critical variables</p> Signup and view all the answers

    What is a key consideration in evaluating a project's capital structure?

    <p>The project's financial risk</p> Signup and view all the answers

    What is the primary purpose of ratio analysis in financial statement analysis?

    <p>To evaluate the operating and financial performance of a firm</p> Signup and view all the answers

    What is the primary purpose of cash flow statement analysis in project financial appraisal?

    <p>To determine the project's cash flow generation</p> Signup and view all the answers

    What type of ratio measures the company's potentiality and performance?

    <p>Growth Ratio</p> Signup and view all the answers

    What is a key consideration in evaluating a project's working capital requirements?

    <p>The project's asset structure</p> Signup and view all the answers

    What can be evaluated through ratio analysis?

    <p>Financial strength and weakness of a firm</p> Signup and view all the answers

    What is the primary objective of financial projection and preparation of projected financial statements in project financial appraisal?

    <p>To forecast the project's financial performance</p> Signup and view all the answers

    What is the main advantage of using ratio analysis in financial statement analysis?

    <p>It enables to understand the actual financial condition of a firm</p> Signup and view all the answers

    What is the relationship between two figures expressed through a ratio?

    <p>Mathematical relationship</p> Signup and view all the answers

    What is the primary purpose of segregating cash inflows and outflows into three broad categories in the statement of cash flows?

    <p>To distinguish between the company's ability to generate cash and its ability to generate profits</p> Signup and view all the answers

    What can a company's ability to generate future net cash inflows from operations indicate to financial managers or bankers?

    <p>The company's ability to pay its debts and dividends</p> Signup and view all the answers

    What can be inferred about a company if its net cash flow from operating activities is consistently higher than its net income?

    <p>The company is generating cash from its core operations</p> Signup and view all the answers

    What can be a potential consequence of a company's reliance on external financing to meet its liquidity needs?

    <p>Increased debt burden</p> Signup and view all the answers

    What can be a key benefit of analyzing a company's statement of cash flows in conjunction with its other financial statements?

    <p>Assessing the company's ability to generate cash and manage its liquidity</p> Signup and view all the answers

    What is the classification of the current liabilities 'Short Term Bank Borrowings' in the balance sheet of Ahmed Toys (Pvt.) Limited?

    <p>Short-term Bank Borrowings</p> Signup and view all the answers

    What is the purpose of analyzing the 'Due from Affiliates' account in the balance sheet of Ahmed Toys (Pvt.) Limited?

    <p>To determine the liquidity of the company</p> Signup and view all the answers

    What is the relationship between the 'Retained Earnings' account and the 'Net Worth' of Ahmed Toys (Pvt.) Limited?

    <p>Retained Earnings is a component of Net Worth</p> Signup and view all the answers

    What is the purpose of analyzing the 'Inventory' account in the balance sheet of Ahmed Toys (Pvt.) Limited?

    <p>To determine the liquidity of the company</p> Signup and view all the answers

    What is the classification of the 'Tangible Fixed Assets' account in the balance sheet of Ahmed Toys (Pvt.) Limited?

    <p>Non-Current Asset</p> Signup and view all the answers

    What may indicate that a firm has either repaid existing loans or distributed more dividends?

    <p>Negative net financing cash flow</p> Signup and view all the answers

    What is a credit analyst trying to understand when analyzing a firm's tradeoff between tax advantages from increased debt and bankruptcy cost?

    <p>The firm's cash flow profile</p> Signup and view all the answers

    What is essential when considering a firm's capital expenditure in line with its business strategy?

    <p>Consistency with business strategy and growth opportunities</p> Signup and view all the answers

    What does a positive net financing cash flow indicate if it is the result of an increase in equity capital?

    <p>The firm is financially healthy</p> Signup and view all the answers

    What is a primary concern for a credit analyst when analyzing a firm's cash flow profile?

    <p>The firm's ability to manage its tradeoff between tax advantages and bankruptcy cost</p> Signup and view all the answers

    What does the Total Liability to Net Worth ratio measure?

    <p>The extent to which debt financing is used relative to equity financing</p> Signup and view all the answers

    What is the primary purpose of a Cash Flow Statement?

    <p>To report the cash receipts, cash payments, and net change in cash of a firm</p> Signup and view all the answers

    What type of ratio analysis is useful for evaluating a firm's liquidity?

    <p>Liquidity ratio analysis</p> Signup and view all the answers

    What is the name of the ratio that measures the extent to which debt financing is used relative to equity financing?

    <p>Total Liability to Net Worth ratio</p> Signup and view all the answers

    What is the primary focus of financial statement analysis?

    <p>To evaluate the performance of a firm and make informed decisions</p> Signup and view all the answers

    What is the name of the statement that reports a firm's cash receipts, cash payments, and net change in cash?

    <p>Cash Flow Statement</p> Signup and view all the answers

    What is the primary purpose of ratio analysis in financial statement analysis?

    <p>To identify trends and patterns in a firm's financial data</p> Signup and view all the answers

    What is the name of the ratio that measures the extent to which a firm has been financed by debt?

    <p>Leverage ratio</p> Signup and view all the answers

    What is the primary purpose of segregating cash inflows and outflows into three broad categories in the Cash Flow Statement?

    <p>To identify the sources and uses of a firm's cash</p> Signup and view all the answers

    What is the main advantage of using ratio analysis in financial statement analysis?

    <p>It helps to identify trends and patterns in a firm's financial data</p> Signup and view all the answers

    What does the Inventory in Days ratio indicate?

    <p>The average number of days the inventory is held before it is turned into accounts receivable through sales</p> Signup and view all the answers

    What is the rule of thumb for the Sales to Total Assets ratio?

    <p>Higher is better</p> Signup and view all the answers

    What does the Quick Ratio measure?

    <p>A company's ability to meet its current debts with its most liquid assets</p> Signup and view all the answers

    What is the rule of thumb for the Working Capital Components ratio?

    <p>Higher is better</p> Signup and view all the answers

    What does the Current Ratio measure?

    <p>A company's ability to meet its current debts with its current assets</p> Signup and view all the answers

    What is a primary concern for a short-term creditor when evaluating a borrower?

    <p>Liquidity</p> Signup and view all the answers

    What is the primary purpose of financial statement analysis?

    <p>To evaluate a company's past performance and current financial position</p> Signup and view all the answers

    What does a long-term creditor consider when evaluating a firm?

    <p>Profitability and solvency</p> Signup and view all the answers

    What is the primary objective of analyzing an income statement and balance sheet?

    <p>To assess a company's profitability and solvency</p> Signup and view all the answers

    What is a key consideration for stockholders when assessing a company?

    <p>Profitability and solvency</p> Signup and view all the answers

    What is the main purpose of ratio analysis in financial statement analysis?

    <p>To evaluate financial performance of a firm and identify its strengths and weaknesses</p> Signup and view all the answers

    What does a ratio express in financial analysis?

    <p>A mathematical relationship between two figures</p> Signup and view all the answers

    What is the primary focus of financial statement analysis?

    <p>To analyze the financial performance of a firm and make informed decisions</p> Signup and view all the answers

    What is the purpose of segregating cash inflows and outflows into three broad categories in the cash flow statement?

    <p>To analyze the cash flows of a firm from different activities</p> Signup and view all the answers

    What can be evaluated through ratio analysis?

    <p>All of the above</p> Signup and view all the answers

    What is the main purpose of leverage ratios?

    <p>To measure the extent to which a firm has been financed by debt</p> Signup and view all the answers

    What type of ratio analysis is useful for evaluating a firm's liquidity?

    <p>Liquidity ratios</p> Signup and view all the answers

    What is the primary purpose of a Cash Flow Statement?

    <p>To summarize a firm's cash inflows and outflows</p> Signup and view all the answers

    What does a high Total Liability to Net Worth ratio indicate?

    <p>A high level of debt financing</p> Signup and view all the answers

    What is the implication of a negative net financing cash flow?

    <p>The firm has either repaid existing loans or distributed more dividends.</p> Signup and view all the answers

    What is the name of the ratio that measures the extent to which debt financing is used relative to equity financing?

    <p>Total Liability to Net Worth ratio</p> Signup and view all the answers

    What is a credit analyst trying to understand when analyzing a firm's cash flow profile?

    <p>The firm's tradeoff between tax advantages from increased debt and bankruptcy cost.</p> Signup and view all the answers

    What is the primary concern of a credit analyst when analyzing a firm's cash flow profile?

    <p>The firm's tradeoff between tax advantages from increased debt and bankruptcy cost.</p> Signup and view all the answers

    What does a positive net financing cash flow indicate if it is the result of an increase in equity capital?

    <p>The firm is relying on equity capital to fund its operations.</p> Signup and view all the answers

    What is the primary objective of analyzing a firm's cash flow statement?

    <p>To evaluate the firm's liquidity position.</p> Signup and view all the answers

    What does the Interest Coverage Ratio measure?

    <p>The ability of a company to generate cash to pay interest and principal repayments</p> Signup and view all the answers

    What does the Debt Service Coverage Ratio reflect?

    <p>The ability of a company to serve its long-term debt</p> Signup and view all the answers

    What is the purpose of Activity Ratios in financial statement analysis?

    <p>To evaluate a company's efficiency in utilizing its assets</p> Signup and view all the answers

    What does the Receivable in Days ratio indicate?

    <p>The average number of days it takes to collect accounts receivable</p> Signup and view all the answers

    What is the rule of thumb for the Interest Coverage Ratio?

    <p>Higher is better</p> Signup and view all the answers

    What is the main objective of industry analysis in a marketing plan?

    <p>To identify the main sources of competitive forces that lie within the industry</p> Signup and view all the answers

    What is included in a market analysis?

    <p>All of the above</p> Signup and view all the answers

    What is the primary consideration when analyzing the marketing aspect of a project?

    <p>Both a and b</p> Signup and view all the answers

    What is the primary objective of analyzing the company's internal environment?

    <p>To analyze the company's competencies and resource strengths</p> Signup and view all the answers

    What is the primary purpose of Porter's Five Forces model?

    <p>To identify the main sources of competitive forces that lie within the industry</p> Signup and view all the answers

    What is the primary focus of marketing analysis?

    <p>Industry analysis</p> Signup and view all the answers

    What is the primary purpose of analyzing consumer behavior?

    <p>To understand consumer attitudes and preferences</p> Signup and view all the answers

    What is included in a marketing analysis?

    <p>All of the above</p> Signup and view all the answers

    What is the primary purpose of identifying the company's external environment?

    <p>To analyze the company's external environment</p> Signup and view all the answers

    What is the primary focus of a marketing plan?

    <p>Industry analysis</p> Signup and view all the answers

    What is the primary purpose of Internal Credit Risk Rating System?

    <p>To facilitate the portfolio management activities</p> Signup and view all the answers

    What should be used to assess the line of business if the borrower is in multiple lines of business?

    <p>The sector with the highest revenue and/or profit</p> Signup and view all the answers

    What is the authority to sanction/approve loans delegated to?

    <p>Managing Director (MD)/Chief Executive Officer (CEO) and Board of Directors (BOD)</p> Signup and view all the answers

    What should be used if the right sector or industry is not selected?

    <p>Other industry</p> Signup and view all the answers

    What is the purpose of Internal Credit Risk Rating System in credit selection?

    <p>To be used for individual credit selection, credit pricing, and setting credit limit and terms and conditions</p> Signup and view all the answers

    Who is responsible for identifying early alert accounts and reporting them to CRM?

    <p>Relationship Manager</p> Signup and view all the answers

    What is the primary responsibility of the Recovery Unit in each bank?

    <p>To determine recovery strategy and pursue all options to maximize recovery</p> Signup and view all the answers

    Who is responsible for approving the Classified Loan Review Report for NPLs up to a certain percentage of the bank's capital?

    <p>Head of Credit</p> Signup and view all the answers

    What is the primary focus of the account manager in the Recovery Unit?

    <p>To coordinate and administer the action plan and serve as the primary customer contact</p> Signup and view all the answers

    What is the significance of reviewing the strategy and adequacy of provisions for NPLs?

    <p>To ensure timely loan loss provisioning</p> Signup and view all the answers

    What is the primary objective of credit investigation?

    <p>To identify good borrowers and prevent bad credit</p> Signup and view all the answers

    Why is it essential to select a good borrower?

    <p>To ensure loan repayment and minimize credit risk</p> Signup and view all the answers

    What is the primary focus of a banker when sanctioning credit?

    <p>To ensure loan repayment and minimize credit risk</p> Signup and view all the answers

    Why is curative measure costlier than preventive measure in credit risk management?

    <p>Because curative measures require more time and money</p> Signup and view all the answers

    What is the purpose of collecting information from different parties, including the Credit Information Bureau (CIB) report?

    <p>To assess the creditworthiness of the borrower</p> Signup and view all the answers

    What is the primary purpose of Internal Credit Risk Rating System (ICRRs)?

    <p>To provide a granular, objective, transparent, consistent framework for the measurement and assessment of borrowers' credit risk</p> Signup and view all the answers

    What is the key reference for credit risk assessment and decision making?

    <p>Internal Credit Risk Rating (ICRR) score</p> Signup and view all the answers

    What is considered during the credit assessment of a borrower?

    <p>Liquidity, cash flow, profitability, debt profile, market indicators, and industry background</p> Signup and view all the answers

    Why do participatory banks perform their own independent assessment and review of terms of the syndicate loan?

    <p>To mitigate their own credit risk</p> Signup and view all the answers

    What is the term used to describe the credit assessment of a group of companies?

    <p>Obligor</p> Signup and view all the answers

    What is the next step after the credit proposal is approved by the approval authority?

    <p>Sending the approved proposal to Credit Administration</p> Signup and view all the answers

    Who should take legal action against defaulted borrowers as a last resort to recovery credit?

    <p>Recovery Unit (RU)</p> Signup and view all the answers

    What is the purpose of introducing an incentive program for Recovery Unit (RU)?

    <p>To encourage RU to bring down the NPLs</p> Signup and view all the answers

    What is the role of the Board in credit risk management?

    <p>To receive a copy of the credit proposal approved by the MD/CEO</p> Signup and view all the answers

    What is the function of the Credit Administration (CAD) in credit operations?

    <p>To issue sanction advice and ensure compliance</p> Signup and view all the answers

    What is the main purpose of credit risk management in banks?

    <p>To manage risk and return</p> Signup and view all the answers

    What is the significance of a well-defined credit policy in banks?

    <p>To ensure good credit portfolio</p> Signup and view all the answers

    Why is credit risk management critical for banks?

    <p>Because it helps in managing risk and return</p> Signup and view all the answers

    What is the importance of credit assessment in banks?

    <p>To determine creditworthiness of borrowers</p> Signup and view all the answers

    What percentage of total assets of commercial banks in Bangladesh constitute loans and advances?

    <p>65%</p> Signup and view all the answers

    What is the primary purpose of the procedural guidelines in a bank's credit operation?

    <p>To manage credit risk</p> Signup and view all the answers

    Who is responsible for sanctioning and disbursing the credit budget in a bank?

    <p>Credit Committee/CRM</p> Signup and view all the answers

    What is the primary role of Relationship Management (RM) in a bank?

    <p>To act as a primary bank contact with a borrower</p> Signup and view all the answers

    What is the primary purpose of the credit budget in a bank?

    <p>To allocate funds for lending</p> Signup and view all the answers

    What is the overall sequence of activities involved in credit operations in a bank?

    <p>Discussion between bank and client, loan disbursement, loan recovery</p> Signup and view all the answers

    What is the purpose of the credit committee/CRM in a bank?

    <p>To review and approve loan proposals</p> Signup and view all the answers

    What is the primary focus of a bank's credit policy?

    <p>To minimize credit risk</p> Signup and view all the answers

    What is the role of Bangladesh Bank in guiding a bank's credit operations?

    <p>To provide guidelines for credit risk management</p> Signup and view all the answers

    What is the primary consideration in a bank's credit operations?

    <p>Minimizing credit risk</p> Signup and view all the answers

    What is the purpose of a bank's procedural guidelines in credit operations?

    <p>To manage credit risk</p> Signup and view all the answers

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