Flex MBA Financial Statement Analysis
Instructions to students: Please stay within the beige colored boxes (like this one) for your answers. If you need extra space, please add rows to the areas provided for answers. To receive credit for a computational question, please show your work in Excel (do not enter just a number).
Hypothetical scenario: Based on a recommendation from your professor, you have been invited to interview for an investment analyst position at the Hult Sustainable Finance Funds. You are invited to an office screening interview.
Describe these common terms and concepts used in the financial industry:
a. The Financial Accounting Standards Board sets U.S. GAAP. The International Accounting Standards Board sets the International Financial Reporting Standards. They does the U.S. Securities and Exchange Commission and most investors want an agreement for one global reporting standard? What is this process called by the SEC?
b. One of the most important sections of the 10K is the MD&A. What is the objective of the MD&A? Is it audited? Is there a risk that there is bias in the statements why/why not?
c. One of the most often used techniques for fraud relates to revenue recognition As an example, assume a portrait artist is hired to paint a famous celebrity for $25,000 based on photographs (not a live sitting). The artist has completed the portrait, but has not yet shown the portrait to the celebrity. Using the GAAP guidelines for revenue recognition, make two cases: 1) that an artist should recognize the $25,000 fee and 2) the artist should NOT recognize the $25,000 fee.
Which statement would you go to find the following information? Give two line items that would be useful in your research?
d. What actions did the company take in getting funds from loans and stock transactions this year?
e. How much profit this year was from recurring versus non-recurring activities?
f. Does the company have too much debt?
g. What happened to the equity accounts this year? Why did shareholders' equity go down when it made a profit?
Next, please answer these questions about the SEC and the regulatory environment.
What do you hope to learn from these SEC filings?
a. The 10-K
b. The 10-Q
c. The 8-K
Congratulations! You made it to the second round interview with a financial analyst. The objective is to assess your accounting knowledge. Note; The financial effects (accounting) template is slightly different than the University of Illinois version. Specifically, there are more columns available on this version. If you record the transactions according to Prof. Urcan's approach, you will also be marked correct.
Use the information below to create a balance sheet and income statement. Hint: the signs (positive or negative) are the normal signs as seen in statements.
For full credit, the balance sheet should be classified (i.e. current and noncurrent separated) and the income statement should include gross profit, operating income, income before income taxes and net income.
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