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Questions and Answers
Which of the following is NOT a reason for evaluating financial statements?
Which of the following is NOT a reason for evaluating financial statements?
- To assess a company's ability to pay back debts
- To compare financial performance over time or between companies
- To determine a company's growth prospects (correct)
- To analyze and improve the firm's operations
What is the purpose of ratio analysis?
What is the purpose of ratio analysis?
- To interpret a firm's relative relationship with other companies
- To analyze a firm's efficiency and growth prospects
- To evaluate a firm's accounting numbers
- To translate a firm's accounting numbers into relative values (correct)
Who would analyze ratios to ascertain a company's ability to pay back debts?
Who would analyze ratios to ascertain a company's ability to pay back debts?
- Managers
- Stock analysts
- Credit analysts (correct)
- Security analysts
What do bond analysts analyze when evaluating a firm's financial performance?
What do bond analysts analyze when evaluating a firm's financial performance?
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Why do security analysts analyze a firm's financial performance?
Why do security analysts analyze a firm's financial performance?
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Study Notes
Evaluating Financial Statements
- Evaluating financial statements is not done to determine the layout of the statements.
Ratio Analysis
- Ratio analysis is used to evaluate a firm's financial performance and identify trends.
- It is a tool to analyze and interpret financial data.
Debt Payment Ability
- Credit analysts use ratio analysis to determine a company's ability to pay back debts.
Bond Analysis
- Bond analysts evaluate a firm's financial performance by analyzing its ability to meet interest payments and repay principal.
Security Analysis
- Security analysts evaluate a firm's financial performance to determine its investment potential and make informed investment decisions.
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