CFA Practice Question

There are 86 practice questions for this study session.

CFA Practice Question

Which of the following best highlights a company's financial condition and is an overview of the results of operations?
A. The statement of cash flows
B. Management discussion and analysis
C. The security and exchange commissions 401-k report
Explanation: The management discussion and analysis provides a great deal of detail regarding the company's financial condition, the results of operations, favorable or unfavorable trends, and significant events that have affected or will affect the firm.

User Contributed Comments 15

User Comment
wollogo Yeah right! Because we all know that managers will give a completely fair and unbaised perspective. Bit of a contradiction to the CFA course having a whole section devoted to financial shanningans.
myanmar you are right wollogo, all managers are so honest
addidas if you don't trust B, then you should not trust the other choices either. Manager can prepare falsyfied cash flow statements, 401-k, etc. The point of this question is that which material, provided they are all reliable, should be used for highlighting ... The other three each covers one aspects and B is a summary of everything.
CFADru Manager's discussion is opinion. Cash is reality. Considering the audited financial statements in relation to this vital statement, I will know the reality of the opinion and how much they digress from one another.
robB The auditors's opinion is basically retrospective and not prospective...I agree B is the best answer
DonCap From the given answers, maybe. But the MD&A should really be viewed as a marketing tool rather than a standard.
panos When i will become a manager , i will say the whole truth
Xocrevilo As an active portfolio manager, this questions strikes me as another example of how CFA questions are detached from reality. Management discussion is a useful source of information, but should always be regarded with a high degree of scepticism and suspicion, given it's subjective nature. Are management incentivised to discuss all of the important, negativen points within their financial statements? Of course not. In the majority of occasions, colleagues and I will not even read the management discussion.... as the numbers are far more important!
RCapistrano I believe we have to view the CFA questions similar to how we view financial theory classes from school: it's great in "theory", but may not be applicable in practice.
MylesGrenier Well when looking at a companies Statement of Cash Flows and nothing else, how much can you really guage about it's performance?
rocyang Well said, Xocrevilo(Weird name by the way). I've been only managing my family's mini portfolio for the past few years and even I know better than a (possible) bunch of bookworms who (possibly) have difficulties in beating the market. I only wanted CFA charter for some more "formal" recognition, and largely because it was given credit by the immortal B.G. (But it's in the 70's) I've already paid the fee for level 1 exam, and I reckon it will be all that CFAI will get from me as I want no more from CFAI after the level 1 exam.

If you trust answer B, there is a whole stash of annual reports of crooked companies (Enron, World) in my archieve room.
bvides ohhhh sure...most likley they will say something possible right?
endurance seems a bit contradictionary - Cash flow statements is audited, MD&A is not - but again, read the question carefully
navarro I think that the key words in this question is "highlight" and "overview".
choas69 *highlights*
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