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Financial Analysis Questions

The document contains four questions related to financial analysis and forecasting. Question 1 defines key terms and discusses reasons for earnings management. Question 2 explains the Dupont model and requires forecasting company profits using two methods. Question 3 requires time series analysis including trend line determination and forecasting. Question 4 discusses the purpose of financial statements and analyzing specific financial statement line items.

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machariachristine33
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37 views2 pages

Financial Analysis Questions

The document contains four questions related to financial analysis and forecasting. Question 1 defines key terms and discusses reasons for earnings management. Question 2 explains the Dupont model and requires forecasting company profits using two methods. Question 3 requires time series analysis including trend line determination and forecasting. Question 4 discusses the purpose of financial statements and analyzing specific financial statement line items.

Uploaded by

machariachristine33
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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INSTRUCTIONS:

1.
Attempt ALLquestions. Marks are awarded as
2.
Show your necessary workings indicated on each Ouestion
QUESTION ONE
a). Explain what is meant by the
be concerned with quality of term 'information quality' and briefly explain the groups that will
financial
b). Explain the meaning of earnings information. and (9 marks)
management discuss
incidences clearly explaining four main reasons that may push any four earnings management
management. that may occur in a firm. managers to undertake earnings
(16 marks)

QUESTION TWO
a). Explain the Dupont model of
analysis and its importance.
b).The following information relates (3 marks)
to profits of XItd in millions of
years: shillings over a period of 13
YEAR PROFITS IN SHMILLIONS
2011 25
2012 22
2013 28
2014 30
2015 32
2016 24
2017 22
2018 36
2019 33
2020 30
2021 25
2022 45
2023
34
he management of XLtd is considering adopung one or the two methods in predicting nrofte:
2

3. Ey=1h i=1}yi 2. Ey, =yu


Where Yt.irepresents profits at tine t, yurepresentsthe expected profits at time t.
kequired:
'ou are the financial analyst of the company and you have been tasked with the responsibility of
dvising the management on the best approach to adopt in forecasting profits. Use the absolute
ean error and the mean squared error to recomt iend to management the method to adopt. Support
Our answer. (20 marks)

DUESTION THREE:
). Explain the 3 reasons of studying a time series (3 marks)
). You are the financial managerofX Lid in charge of financial forecasting. The board of directors
quires quarterly profits forecasts for decision making. The following information, which is
ucial for your report, relates to the profits (in millions of shillings) for the company:
Year Quarter
1 3 4
2019 4.0 4.4 4.8 5.3
2020 5.2 5.8 6.0 6.4
2021 6.0 6.2 6.6 7.0
2022 6.2 5.8 6.8 7.4
equired:
I. Calculate the two quarterly moving average trend and depersonalize this set of data using the
dditive model> (15 marks)
ote: Workings to two decimal places at every stage
). Assume the trend line was determined as: y = 2.6 + 0.22x using the method of least squares.
i). Explain how the line was arrived at (Calculations not required). (5 marks)
). Use this to predict the profits for the quarters 1and 4of the year 2024. (4 marks)
UESTION FOUR
1. Financial statements must provide
recasting.
quality information to be useful in analysis and
equired:
. State and briefly explain the main steps followed in carrying out
>mpany of interest. financial analysis of a
(6marks)
. Explain the main issues that you would be concerned with when analyzing the following
ems of a firm:
i Liabilities
Return on equity (7marks)
Accounts receivables (6marks)
(6 marks)

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