Financial Analysis & Reporting Flashcards

Which financial statement component would an appraiser examine to determine whether an insured business had significant off-balance-sheet obligations prior to a loss?

Answer: Footnotes and supplemental disclosures

Off-balance-sheet obligations such as operating leases and contingent liabilities are disclosed in footnotes and supplemental notes to financial statements.

A manufacturing plant's finished goods inventory was destroyed in a fire. To value the loss, the appraiser should use:

Answer: Full absorption cost including materials, labor, and overhead

Finished goods inventory is valued at full absorption cost, including direct materials, direct labor, and applied manufacturing overhead.

An appraiser analyzing a restaurant's pre-loss financials notices that cost of goods sold (COGS) as a percentage of sales has been rising for three years. This trend most likely indicates:

Answer: Rising input costs or increasing waste/shrinkage

An increasing COGS-to-sales ratio signals that the restaurant is spending more to generate each dollar of revenue, typically due to rising food costs or operational inefficiencies.

In insurance loss analysis, 'ordinary payroll' exclusion in a business interruption policy most directly reduces coverage for:

Answer: Hourly worker wages that would continue even if operations ceased

Ordinary payroll exclusions remove coverage for non-essential hourly wages of employees who would typically be laid off or furloughed during a business shutdown.

When performing a loss reserve analysis, which actuarial method projects ultimate losses by analyzing the development of paid and incurred losses over successive accident years?

Answer: Chain-ladder (development) method

The chain-ladder method analyzes historical loss development patterns across accident years to project how current reserves will develop to ultimate settlement values.

A property insured under a replacement cost policy suffers a partial loss. The insurer initially pays ACV and will pay the remaining recoverable depreciation only after:

Answer: The actual repairs or replacements are completed

Under most replacement cost policies, recoverable depreciation is paid only after the insured completes actual repairs or replacement, preventing windfalls from uncompleted work.

When forecasting lost revenues for a business interruption claim, which approach best accounts for a growing business's upward sales trajectory?

Answer: Applying a trend factor derived from historical growth rates to pre-loss revenue

Applying a trend factor to historical revenue data captures the business's growth momentum and produces a more accurate estimate of what revenues would have been absent the loss.