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Free CFA I Exam Braindumps
CFA Level I Chartered Financial Analyst Questions 2021–2025 (page: 406)

Updated On: 9-Feb-2026
Page 406 of 793
PDF with 3960 Questions

"Horizontal analysis" refers to:

  1. comparison of various quantities in a common-sized financial statement.
  2. comparison of a firm's financial statements with those of a similar firm.
  3. comparative analysis of financial statements as they evolve over time.
  4. comparative study of a firm's dependencies on businesses in the different industries in which it is active.

Answer(s): C

Explanation:

In comparative financial analysis, one of the important parts is detecting trends in the changes that occur over time in the different financial statements. This trend analysis is quirkily referred to as "horizontal analysis," probably because comparison implies a side-by-side analysis of the financial items in the statements. Two popular techniques in horizontal analysis are "year-to-year change" analysis and "Index number trend series" analysis.



Which of the following is NOT a disclosure requirement for financial instruments?

  1. Firms must present fair valuations of financial instruments in the financial statements or accompanying notes.
  2. Firm must present reasons for not meeting any of the disclosure requirements.
  3. Firms must disclose the purposes of holding any speculative financial instruments.
  4. Firms must disclose significant assumptions used to value financial instruments.

Answer(s): C

Explanation:

Firms must disclose the purposes of holding any speculative financial instruments.



The purpose of the Management Report is to:

  1. analyze favorable and unfavorable trends affecting the firm.
    II. reinforce senior management's responsibilities for the company's financial and internal control systems.
    III. review the firm's financial condition in light of short-term liquidity requirements and proposed investment activities.
    IV. emphasize the roles of management, directors and auditors in the preparation of financial statements.
  2. I, II & III
  3. II & III
  4. II, III & IV
  5. II & IV

Answer(s): D

Explanation:

I & III are part of Management's Discussion & Analysis (MD&A)



The Statement of Stockholders' Equity does not report

  1. any minimum pension liability.
  2. any cumulative impact on prior period earnings.
  3. the investment of the owners in the firm.
  4. the various accounting adjustments that reflect selected market value changes in noncurrent assets.
  5. the effect of exchange rate changes on certain foreign subsidiaries.

Answer(s): B

Explanation:

Any cumulative impact on prior period earnings is reported net of tax after extraordinary items and discontinued operations on the income statement.



A test to determine whether a convertible security is dilutive or antidilutive is to calculate EPS

  1. for the security alone and compare it to the EPS without inclusion of the security.
  2. for the security alone and compare it to the EPS with inclusion of the security.
  3. for the security alone.
  4. without inclusion of the security.
  5. with inclusion of the security.

Answer(s): A

Explanation:

By comparing the EPS of the security alone with the EPS without inclusion of the security, if the former is smaller than the latter, then the security is dilutive which means it causes EPS to decline.



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