# Study Session 9: Financial Reporting and Analysis: Financial Reporting Quality and Financial Statement Analysis

## FRA Question - Can someone help me on this? Thankss

This is a practice question on the 2019 note. My original thought was choice C (+150,000+10,000+4,000), however, the official right answer is B, along with the explanation saying that accounts payable do not affect cash collection. I am really confused since AP is a liability account, an increase in liability isn’t a source of cash?

1. Continental Corporation reported sales revenue of \$150,000 for the current year.
If accounts receivable decreased \$10,000 during the year and accounts payable
increased \$4,000 during the year, cash collections were:

## Conservative Bias - benefits

Hi all,

(I have checked and did not find a post on this topic)

How should I understand one of the benefits of conservative bias as

“…in protecting the interests of those who have less complete information than company management, such as buyers of the company’s debt.”?

## How to get to Effective Yield from ROA

If I have a loan with an ROA of .90%, I think i can multiply by 10 to get an approximate yield or ~9%.

Can anyone remind me how to get to Effective Yield given an ROA level?

Thanks

## MV/BV ratio. The higher the better or vice a versa ?

Hi all,

I got confused why the MV/BV ratio with the lower quotient is deemed to have a better value. Below is the excerpt from Reading 33 (CFA Institute book).

Marseglia computes the MV/BV for the companies as follows:

SCHW \$21,871/\$5,073 = 4.3

AMTD \$11,525/\$3,551 = 3.2

## Diluted EPS

The Fischer Company had net income of \$1,500,000. Fischer paid preferred dividends of \$5 on each of the 100,000 preferred shares. There are 1 million Fischer common shares outstanding. In addition to the common and preferred stock, Fischer has \$25 million of 4% bonds outstanding. The face value of each bond is \$1,000. Each bond is convertible into 40 common shares. If Fischer’s tax rate is 40%, determine its basic and diluted earnings per share (EPS)?

I need help calculating diluted EPS.  Thanks in advance.

## IFRS vs GAAP: outdated question?

This was the answer for a question on IFRS vs GAAP. Part in bold is the section I am not understanding:

## Available for sale security

In the beginning of FRA they said that available for sale unrealized gains and losses are a part of other comprehensive income; now I am reading that under IFRS the unrealized g/l due to rate fluctuations go into the IS….. this is wrong, right? And how about GAAP? where do they go.

## Value of a Company vs its Equity

“Projections of future financial performance over multiple periods are needed in valuation models that estimate the value of a company or its equity”

(Institute 699)

Institute, CFA. 2016 CFA Level I Volume 3 Financial Reporting and Analysis. CFA Institute, 07/2015. VitalBook file.

The citation provided is a guideline. Please check each citation for accuracy before use.

## Market-Based Valuation

What is market-based valuation? The internet has failed me with this one. The CFA books use this term but don’t explain it.

## Financial Leverage

Financial Leverage = Total Debt/ Shareholders Equity or  Avg Total Assets/Avg Total Equity. Which one to use and what’s the difference ?