
Financial Statement Analysis Techniques
Explore different techniques used in financial statement analysis such as vertical analysis, common-size statements, trend analysis, and horizontal analysis. Understand how these methods help in evaluating financial information effectively.
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Presentation Transcript
UPSC EPFO 2020-21
Question Vertical Analysis is also known as : (a) Static Analysis (b) Dynamic Analysis (c) Structural Analysis (d) None of these 4
Explanation Answer: a) Static Analysis Vertical analysis means a method of analyzing financial statement items by comparing their balances as ratios of the total account category balance. 5
Question Common-size Statement are also known as: (a) Dynamic Analysis (b) Horizontal Analysis (c) Vertical Analysis (d) External Analysis 6
Explanation Answer: (c) Vertical Analysis Common size, or vertical analysis, is a method of evaluating financial information by expressing each item in a financial statement as a percentage of a base amount for the same time period. A company can use this analysis on its balance sheet or its income statement. 7
Question For calculating trend percentages any year is selected as: (a) Current year (b) Previous year (c) Base year (d) None of these 8
Explanation Answer: (c) Base year Trend analysis is a technique used in technical analysis that attempts to predict future stock price movements based on recently observed trend data. Trend analysis is based on the idea that what has happened in the past gives traders an idea of what will happen in the future. 9
Question Trend ratios and trend percentage are used in : (a) Dynamic analysis (b) Static analysis (c) Horizontal analysis (d) Vertical Analysis 10
Explanation Answer: (c) Horizontal analysis Horizontal analysis (also known as trend analysis) is a financial statement analysis technique that shows changes in the amounts of corresponding financial statement items over a period of time. It is a useful tool to evaluate the trend situations 11
Question Tangible assets of company increased from T in 0 Year 4,00,000 to T in 1 year 5,00,000. What is the percentage of change ? (a) 20% (b) 25% (c) 33% (d) 50% 12
Explanation Answer: (b) 25% 5,00,000 -4,00,000 x 100 = 25% 4,00,000 j 13
Question What is the first step in an analysis of financial statements? a) Check the auditor s report. b) Check references containing financial information. c) Specify the objectives of the analysis. d) Do a common size analysis. 14
Explanation c) Specify the objectives of the analysis. 15
Question While preparing common size Balance sheet, each item of balance sheet is expressed as % of : (a) Non- current assets (b) Current assets (c) Non- current liabilities (d) None of these 16
Explanation Answer: (d) None of these 17
Question Financial analysis is significant because it: (a) Ignores qualitative aspect (b) Judges operational efficiency (c) Suffers from the limitations of financial statements (d) It is affected by personal ability and bias of the analysis 18
Explanation Answer: (b) Judges operational efficiency 19
Question Break-even Analysis shows: (a) Relationship between cost and sales (b) Relationship between production and purchases (c) Relationship between cost and revenue (d) None of these 20
Explanation Answer: (a) Relationship between cost and sales 21
Question Which report gives a review on the profitability of a business? (a) Statement of changes in equity (b) Cash flow statement (c) Balance sheet (d) Income statement 22
Explanation Answer: (d) Income statement 23