- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 1. Introduction to Financial Statement Analysis
- Subject 1. Steps of Financial Statement Analysis
CFA Practice Question
Which of the following can be found from an analysis of a firm's financial statements?
II. Any recent changes in the firm's credit rating
III. Projected earnings for the upcoming year
IV. Recent changes in the firm's liquidity position
I. The current price of the firm's common stock
II. Any recent changes in the firm's credit rating
III. Projected earnings for the upcoming year
IV. Recent changes in the firm's liquidity position
Correct Answer: IV
The financial statements are historical-based (report past activity) and, despite the fact that they may give an indication of prospects for the future, they do not include forecasted or projected data. Projected earnings might be found in the annual report, but they are not reported in the basic financial statements.
User Contributed Comments 11
| User | Comment |
|---|---|
| Nipesh | Was about to give IV but the term analysis in question made me select III. |
| maithori | Recent changes by calculating the liquidity ratios. Current ratio, acid test ratio and cash ratio |
| agalday | why II is incorrect |
| MattNYC | III is technically incorrect. With the IS, one can project future earnings and cash flow. However, this is not FOUND in the financial statements, they must be computed by the analyst. |
| benji1983 | agalday, II is incorrect because a firm's credit rating is not found in the firm's basic financial statements. |
| 8thlegend | Ug, I am so used to analyst saying what they predict the next quarter will be like, I picked number III with such assurance. |
| vatsal92 | I- Financial statements are historically based, hence current price of stock can't be ascertained. II- Credit ratings are given by Credit Institutions like S&P, Finch.. III- Projected earnings are found in annual reports, and not in financial statements. IV- Historically based, hence it's the correct answer. |
| vickyroy | How can recent changes be historical? |
| J0rdanl | I would change "An analysis of" to "reviewing" in the question, I think the wording is misleading if the question is asking what detail can you find in financial statements - because I can do an "analysis" of the statements to see historic growth rates to come up with some future projections |
| SWHY0104 | Projected earnings are NOT found in financial statements. Management may provide guidance, but in the MD&A, not 3 financial statements (IS, BS, CFS). Also, typically need more than just historical growth rates to come up with future projections. See Ethics section. |
| choas69 | analysis -> ratios |