Question

1. All of these are limitations of financial ratio analysis except:

a. suitable yardsticks may not be available with which to compare results.
b. excessive information disclosed in company annual reports.
c. year-end data is not necessarily typical of the position during the year.
d. it is past performance that is being analysed.

2. How many of these are limitations of financial analysis?
I The past is an imperfect guide to the future
II The effect of inflation is not considered
III Undisclosed changes in accounting policies
IV Inconsistent classification

a. One
b. Two
c. Three
d. Four

3. Which of these are limitations of financial analysis?
I. The past is an imperfect guide to the future
II. Historical cost financial reports are not adjusted for inflation
III. Non-quantitative factors are not considered
IV. Ratio results often contain errors in calculations
V Comparisons may not be valid

a. I, II, III, V
b. I, II, IV, V
c. II, III, IV, V
d. I, III, IV, V

4. Which statement about capital market research and financial statement analysis is correct?

a. If share markets are inefficient financial analysis is of little use to investors.
b. Analysts relying on financial statement analysis assume that share markets are inefficient.
c. The evidence of share market research on the efficiency of the market is conclusive.
d. Little research has been carried out as to whether share markets are efficient or not.

5. Which statement is incorrect?

a. Fundamental analysis assumes that an analyst can study all the published information in relation to an entity and determine whether its shares are under/over-valued.
b. Fundamental analysis assumes that an analyst should concentrate on studying data about an entity from a primary source and give little weight to secondary sources of information.
c. Fundamental analysis is engaged in by many analysts.
d. Fundamental analysis assumes that an analyst can study all the published information in relation to an entity and determine whether its shares are correctly valued.

Answer 1

1. (6) Excersive information disclosed in company annual report This is Mecause financial ratios are not related to the informetion disclosed in Inmaal report 12. (c) Three 3. (C) I, II, IV, As the statements are self explanatory choosing the answer is provided. the reasons for 4. a. If share markets are inefficient financial analysis is os little use to investors This ub because in inefficient market asset's market price do not accurately reflect its terme value and this it may happen that the market prices are not at par with financial position of the entity. b. fundamental analysis assumes that an analyst should concentrate on studying date about an entity from permany sourced and give little weight to secondary source of information is incorrect as the analyst has to consider all possible information available while valuation