When Analyzing Financial Statements It Is Important to Recognize That

question 70

Multiple Choice

When analyzing financial statements it is important to recognize that accounting distortions can arise. Accounting distortions are those things that cause deviations in accounting information from the underlying economics. Which of the following statements is not correct? Accounting distortions:

• A) can arise as management may deliberately manipulate financial statements.
• B) arise often through application of (correct) accounting principles.
• C) can affect the quality of earnings.
• D) arise if the stock market is not efficient.

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Definitions:

Intrinsic Value

The actual value of a company, stock, currency, or product determined through fundamental analysis without reference to its market value.

Annual

Pertaining to something that happens every year or is calculated over a year's time.

Coupon Rate

An annual interest percentage paid by a bond, based on its face value.

Par Value

The face value of a bond or stock, representing the amount that will be paid back at maturity or the stated value upon which dividends are calculated.