FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 13: Analysis of Financial Statements

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 41

Multiple Choice

Review LaterAdd Note

Review Later

Current assets divided by current liabilities is the:

A) Current ratio.
B) Quick ratio.
C) Debt ratio.
D) Liquidity ratio.
E) Solvency ratio.

F) A) and B)
G) None of the above

Correct Answer

verified

Show Answer

Question 42

True/False

Review LaterAdd Note

Review Later

Financial reporting includes not only general purpose financial statements, but also information from SEC filings, press releases, shareholders' meetings, forecasts, management letters, auditor's reports, and Webcasts.

A) True
B) False

Correct Answer

verified

Show Answer

Question 43

True/False

Review LaterAdd Note

When an item has a value in the base period and zero in the analysis period, the decrease is 100 percent.

Vertical analysis is used to reveal patterns in data covering two or more successive periods.

Identify and explain the four building blocks of financial statement analysis.

Martinez Corporation reported Net sales of $765,000 and Net income of $142,000. The Profit margin is:

The higher the accounts receivable turnover, the less quickly accounts receivable are collected.

A company's calendar-year financial data are shown below. The company had total assets of $339,000 and total equity of $144,400 for the prior year. No additional shares of common stock were issued during the year. The December 31 market price per share is $49.50. Cash dividends of $19,500 were paid during the year. Calculate the following ratios for the company: (a) profit margin ratio (b) gross margin ratio (c) return on total assets (d) return on common stockholders' equity (e) book value per common share (f) basic earnings per share (g) price earnings ratio (h) dividend yield. $\begin{array}{llcc} \text {Net sales } &\$650,000 \\ \text { Cost of goods sold } &\underline{422,500}\\ \text { Gross profit } &\$227,500\\ \text {Operating expenses } &\underline{140,500}\\ \text { Operating income } &\$87,000\\ \text {Interest expense } &\underline{9,100}\\ \text { Income before taxes} &\$77,900 \\ \text {Income taxes } &\underline{23,400}\\ \text { Net income } &\underline{\$54,500}\\\\& \text {Ending}\\& \text {Balances}\\ \text { Cash } &\$19,500\\ \text {Accounts receivable (net) } &65,000\\ \text {Inventory } &71,500\\ \text { Plant assets (net) } &\underline{195,000} \\ \text {Total assets } &\underline{\$351,000}\\\\ \text {Current liabilities } &\$74,100\\ \text { Long-term notes payable } &97,500\\ \text {Common stock, \$ 5 par value } &65,000\\ \text { Retained earnings } &\underline{114,400}\\ \text { Total liabilities and equity } &\underline{\$351,000}\\\end{array}$

Horizontal analysis is used to reveal patterns in data covering successive periods.

Describe the purpose of vertical financial statement analysis and how it is applied.

Evaluation of company performance can include comparison and/or assessment of all but which of the following:

The four building blocks of financial analysis are (1)________, (2) ________, (3) ________ and (4) ________.

Analysis of a single financial number is often of limited value.

Profitability is the ability to generate future revenues and meet long-term obligations.

Zhang Company reported Cost of goods sold of $835,000, beginning Inventory of $37,200 and ending Inventory of $46,300. The average Inventory amount is:

Selected balances from a company's financial statements are shown below. Calculate the following ratios for 2018: (a) accounts receivable turnover (b) inventory turnover (c) days' sales uncollected (d) days' sales in inventory (d) profit margin. (e) return on total assets. $\begin{array} { | l | l | l | l | } \hline & \text { Dec. 31, } & \text { Dec. 31, } & \text { For the } \\\hline & 2018 & 2017 & \text { Year } 2018 \\\hline \text { Accounts receivable } & \$ 27,000 & \$ 24,000 & \\\hline \text { Merchandise inventory } & 25,000 & 20,000 & \\\hline \text { Total assets } & 296,000 & 244,000 & \\\hline \text { Accounts payable } & 26,000 & 32,000 & \\\hline \text { Salaries payable } & 3,000 & 4,400 & \\\hline \text { Sales (all on credit) } & & & \$ 312,000 \\\hline \text { Cost of goods sold } & & & 165,600 \\\hline \text { Salaries expense } & & & 48,000 \\\hline \text { Other expenses } & & & 75,000 \\\hline \text { Net income } & & & 24,000 \\\hline\end{array}$

A financial statement analysis report helps to reduce uncertainty in business decisions through a rigorous and sound evaluation.

Comparative financial statements in which each individual financial statement amount is expressed as a percentage of a base amount are called:

Vertical analysis is a tool to evaluate individual financial statement items or groups of items in terms of a specific base amount.

A high level of expected risk suggests a low price-earnings (PE) ratio.