1) Stock appreciation rights give the employee compensation at a future date, based on
the market price at the date of exercise in excess of a pre-established dollar market.
2) The stockholders’ equity section of an insurance company will usually appear similar
to the stockholders’ equity section of other industries.
3) Sales to fixed assets will have the least meaning if assets are relatively new.
4) Ratios of profits to sales and to identifiable assets can help to analyze profitability by
segment.
5) Depreciation expense reduces operating income but does not require the use of cash.
6) Accountants normally recognize revenue when cash is received.
7) The Internal Revenue Code penalizes borrowing for an ESOP.
8) In general, new firms, growing firms, and firms perceived as growth firms will have
a relatively low percentage of earnings retained.
9) For consolidated statements, all transactions between entities being consolidated
(i.e., intercompany transactions) must be eliminated.
10) A review of the assets of a bank may indicate that the bank has a substantial
investment in long-term bonds. Such an investment could reflect substantial risk if
interest rates increase.
11) The studies cited [(Barker, 1999), (Demirakos et al, 2003), and (Asquith et al,
2004)], all agree on the fact that multi-period discounted valuation models seem to play
a significant role in analysts’ normal valuation activity.
12) In order for ratio analysis to be meaningful for a bank holding company, a large
portion of the services should be bank-related.