CFA Practice Question

There are 86 practice questions for this study session.

CFA Practice Question

Which of the following can be found from an analysis of a firm's financial statements?

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
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