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Cfm 203: Financial Statement Analysis Question Paper
Cfm 203: Financial Statement Analysis
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2009
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UNIVERSITY EXAMINATIONS: 2008/2009
SECOND YEAR STAGE III EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CFM 203: FINANCIAL STATEMENT ANALYSIS
DATE: APRIL 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE
a) i) Describe financial statement analysis ( 2 Marks)
ii) Describe the importance of financial statement analysis ( 3 Marks)
b)
i. Describe three main components of financial analysis ( 3 Marks)
ii. What factors should be considered by a corporate leader in deciding whether to write
loan covenants relating to financial information statement non-financial statement based
variables.
c)
i. Discuss the need for comparative analysis ( 3 Marks)
ii. Express the following income statement inform of common size percents and assess
whether this company’s situation is favorable or unfavorable
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HARBISON CORPORATION
Comparative Income Statement
For Years Ended December 31, 2007 And 2008
2007 2008
Sales……………………………. $720,000 $535,000
Cost of goods sold……………….475, 200 280,000
Gross profit ……………………. 244,800 254,660
Operating Expenses …………….151, 200 103,790
Net income $93,600 $150,870
d)
i. Ratio analysis is an important tool in financial analysis. Identify at least two ratios using
a) Balance data cohesively (1 Mark)
b) Income statement data exclusively ( 1 Mark)
c) Both balance sheet and income statement data ( 1 Mark)
e)
i. Explain 4 major costs associated with disclosure of financial statement information
(4 Marks)
ii. Distinguish between public sector and private sector regulatory forces in the regulation of
financial information ( 2 Marks)
QUESTION TWO
Information on financial distress assists various parties who relate with a particular business on
type of decisions to make regarding their relationship with the particular business.
a) Critically examine parties that utilize information about financial distress. (12 Marks)
b) A firm has the following set of ratios.
X1=15%, X2=28%, X3=20%, X4=1.5%, X5=180%
Using the Altman’s Z-score formula, predict bankruptcy or non bankruptcy of the firm. (8 Marks)
QUESTION THREE
a) Why is it important to recognize the existence of conflicts among diverse parties in relation to
financial statement information? ( 6 Marks)
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b) Explain FIVE importance of ratio analysis to a business enterprise. ( 4 Marks)
c) Discuss the THREE market forces affecting the timing and content of financial statements
disclosures. ( 10 Marks)
QUESTION FOUR
a) Income statement of Jitunze limited is as follows:
2006 2007 2008
Shs. Shs Shs
Sales 477,000 495,500 545,000
Cost of goods sold 190,000 205,000 225,500
Gross margin 287,000 290,500 319,500
Operating expenses
Selling expenses 115,000 120,000 125,000
Administration expenses 40,000 48,000 57,000
Total expenses 155,000 168,000 182,000
Net margin 132,000 122,500 137,000
Units produced 10,000 10,300 11,000
Required:
i. Prepare Jitunze trend statement. ( 8 Marks)
ii. Comment on the company’s sales increases between 2007 and 2008. ( 6 Marks)
b) Examine employees and customers demand for financial statement ( 6 Marks)
QUESTION FIVE
a) Explain the FOUR widely used terms in financial distress (10 Marks)
b) Discuss how firms identify mis-priced securities in the capital markets ( 5 Marks)
c) Explain the term efficient market and clearly indicate the forms of efficiencies (5 Marks)
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