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Solution Manual For Financial Statement Analysis A Data Analytics Approach 2024 Release By Robert Resutek and Vernon Richardson Chapter 1-10
Chapter 1 End-of-Chapter Assignment Solutions Multiple Choice Questions
- The component from the FSA framework, which includes master the past, primarily includes
- Machine Learning
- Diagnostic analytics
- Predictive analytics
- Prescriptive analytics
- Which of the following is the most important question to an equity investor?
- Will the company go bankrupt?
- Will dividends be discontinued due to solvency concerns?
- How do the company’s projected future cash flows and earnings map into company
- Will the company be able to pay its obligations over the next year?
- Which of the following is the most important to a potential lender?
- What is the company’s revenue-generating capability?
- Can the company convert its revenues into sustainable future cash flows?
- How do the company’s projected cash flows and earnings map into company value?
- Will the company go bankrupt?
- Data identification and data incorporation are an important part of which component of the
- Ask the question
- Master the data
- Predict the future
- Support the findings
- What term is defined as the process of evaluating raw, unstructured, and unrefined data to
- data wrangling
- data analytics
- financial statement analysis
- descriptive analytics
- Which of the following financial statement user would ask for a forecast of the company’s
- Supplier
- Creditor
- Investor
which type of analytics?
value?
general FSA framework?
address all types of questions?
product demand to have sufficient product available to support company sales?
- Employee
- Porter’s five forces are primarily used to evaluate the company’s ____ .
- financial statements
- strategic positioning
- competitive environment
- capital structure
- Which of the following are one of Porter’s five forces?
- Power of competitor
- Bargaining power of buyers
- Strength of the economy
- Supplier’s financial position
- Which of Porter’s five forces addresses the ease of switching from one competitor to another?
- Power of competitor
- Threat of substitute products or services
- Strength of the economy
- Supplier’s financial position
- A company that competes on the basis of cost is more likely to have a ______ advantage, as
- comparative
- differential
- opportunistic
- niche
compared to its competitors.
Discussion Questions
- What data might an analyst use in addition to the financial statements, to address a company’s
FSA questions?Potential solution: Answers will vary, but include competitor financial statements, industry reports, company SEC filings, regulatory filings, other analyst forecasts, conference calls, customer financial statements, press releases, product reviews, etc.
- Most accounting courses/curriculums focus on carefully measuring the past. Why is that
important in predicting the future and ultimately addressing the most important FSA questions?Potential solution: In general, we expect persistence between past performance and future performance. To the extent that we can carefully measure the past, our expectation is that will be a key input into forecasting the future.
- Why is forecasting sales so important for an analyst? Why is it considered to be one of the most
important FSA questions?Potential solution: Generally the first input into a model forecasting earnings and cash flows is the sales forecast. That will help a company determine how much product to produce, and how profitable a company will be.
- What is the difference between predictive and prescriptive analytics? Why does financial
statement analysis employ both, and how do they complement each other?
Potential solution: While predictive analytics works to form expectations of the future by forecasting future performance, prescriptive analytics takes the predictive analytics further by addressing questions of ‘What should we do given our predictions of the future?” or “What should we do if our predictions of the future change?”. Prescriptive analytics is analytics that inform on the best action given a specific set of assumptions and constraints. In financial statement analysis, we predict future sales, earnings and cash flows using predictive analytics, and then value those cash flows using prescriptive analytics.
- Why is sensitivity analysis considered to be prescriptive analytics?
Potential solution: Sensitivity analysis is used to tell how much the outcome will change based on various assumptions. Since prescriptive analytics help the analyst understand what to do based on predictions, the assumptions made in predictive analytics are key to ultimately deciding whether to go forward with a decision (such as buying or selling a stock). That is, prescriptive analytics is analytics that inform on the best action given a specific set of assumptions and constraints.
- What is the difference between a company’s competitive environment and its strategic
positioning?Potential solution: A firm’s competitive environment describes the economic dynamics and forces that affect different facets of a firm’s industry and business model. A firm’s strategic positioning is the result of a set of carefully considered decisions by the firm to position it within its industry to maximize profits. A firm’s strategic positioning is often a response to its competitive environment.
- Which of Porter’s five forces would you think most affects the competitive environment for
Apple Inc? Or for Tesla?Potential solution: Answers will vary. With such a strong competitor in Samsung and its Android (Google) operating system, rivalry among existing competitors is likely the one of Porters five forces that most affects its competitive environment. While Apple works to differentiate their product, there is still a strong competitor in Samsung and Google. Tesla likewise has strong competitors and attempts to differentiate their luxury car in the electric vehicle space.
- Comparing Walmart to Target, which is likely to have a cost advantage and which is likely to
have a differential advantage?Potential solution: With Walmart’s “Every Day Low Price (EDLP)” as the cornerstone mantra of Walmart’s corporate strategy, the corporation conveys to customers that every item that Walmart sells is always at the lowest price that Walmart can offer. To generate sustainable profits with a cost leadership strategy, Walmart relies on selling higher volumes than its competitors. Target however, focuses less on cost and more on product offering and product differentiation. For this reason, Walmart is likely to have a cost advantage, and Target is more likely to have a differential advantage.
Brief Exercises
- (LO 1-1; 1-2) Match the financial statement user (e.g., investor, creditor, supplier,
manager, customer, employee) to the specific question, “What is the company’s revenue-generating capability?”.Specific financial user question Financial Statement User (e.g., investor, creditor, supplier, manager, customer, employee) Will our current capacity be able to produce the expected number of products?Manager Will we have enough product available to support our customer’s level of sales?Supplier Will the company sell enough product to stay in business and pay their loans?Creditor Will the company achieve the expected revenue growth to support the current stock price?Investor Will the projected company growth allow sufficient job opportunities in the future?Employee Will there continue to be new, innovative products in the future available for purchase?Customer
- (LO 1-1; 1-2) Match the analytics type (e.g., descriptive, diagnostic, predictive, and prescriptive)
with the example financial statement analysis questions.Example Financial Statement Analysis Questions Analytics Type (e.g., descriptive, diagnostic, predictive or prescriptive analytics) Did the amount of interest expense as a percentage of sales increase in the past year?Descriptive How did the company’s return on assets compare to the industry as a whole?Diagnostic
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