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Exam 13: Analysis of Financial Statements

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Question 1

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Ash Company reported sales of $400,000 for Year 1,$450,000 for Year 2,and $500,000 for Year 3.Using Year 1 as the base year,what is the revenue trend percent for Years 2 and 3?

A) 80% for Year 2 and 90% for Year 3.
B) 88% for Year 2 and 80% for Year 3.
C) 88% for Year 2 and 90% for Year 3.
D) 112.5% for Year 2 and 125% for Year 3.
E) 125% for Year 2 and 112.5% for Year 3.

F) B) and D)
G) A) and B)

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Question 2

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Standards for comparison are not generally necessary when making judgments about a company's performance.

A) True
B) False

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Question 3

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A corporation reports the following year-end balance sheet data.The company's debt-to-equity ratio equals: $\begin{array} { | l | r |l |r | } \hline \text { Cash } & \$ 40,000 & \text { Current liabilities } & \$ 75,000 \\\hline \text { Accounts receivable } & 55,000 & \text { Long-term liabilities } & 35,000 \\\hline \text { Inventory } & 60,000 & \text { Common stock } & 100,000 \\\hline \text { Equipment } & 145,000 & \text { Retained earnings } & 90,000 \\\hline \text { Total assets } & \$ 300,000 & \text { Total liabilities and equity } & \$ 300,000 \\\hline\end{array}$

________ applies analytical tools to general-purpose financial statements and related data for making business decisions.

$\begin{array} { | l | r | r | } \hline & { \text { Year 2 } } & \text { Year 1 } \\\hline \text { Net sales } & \$ 478,500 & \$ 426,250 \\\hline \text { Cost of goods sold } & 276,300 & 250,120 \\\hline \text { Interest expense } & 9,700 & 10,700 \\\hline \text { Net income before tax } & 67,250 & 52,680 \\\hline \text { Net income after tax } & 46,050 & 39,900 \\\hline \text { Total assets } & 317,100 & 288,000 \\\hline \text { Total liabilities } & 181,400 & 167,300 \\\hline \text { Total equity } & 135,700 & 120,700 \\\hline\end{array}$ -Refer to the following selected financial information from Shakley's Incorporated.Compute the company's return on total assets for Year 2.

$\begin{array} { | l | r | } \hline \text { Current assets } & 306,450 \\\hline \text { Plant assets } & 388,000 \\\hline \text { Current Liabilities } & 107,800 \\\hline \text { Net sales } & 676,000 \\\hline \text { Net Income } & 75,000 \\\hline\end{array}$ -Refer to the following selected financial information from Frankle Corp.Compute the company's current ratio.

A corporation reported cash of $14,000 and total assets of $178,300.Its common-size percent for cash equals 7.85%.

Match each of the following terms with the appropriate formulas. - $\frac {\text { Net income - Preferred dividends}} { \text { Average common stockholders' equity} }$

Measures taken from a selected competitor or a group of competitors are often excellent standards of comparison for analysis.

The comparison of a company's financial condition and performance across time is known as:

Financial statements with data for two or more successive accounting periods placed in columns side by side,sometimes with changes shown in both dollar amounts and percentages,are referred to as:

General-purpose financial statements include the (1)income statement, (2)balance sheet, (3)statement of stockholders' equity (or statement of retained earnings), (4)statement of cash flows,and (5)notes to these statements.

All of the following are true of a financial statement analysis report,except:

The current ratio is calculated as current liabilities divided by current assets.

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

The dollar change for a comparative financial statement item is calculated by:

A good financial statement analysis report often includes the following sections: executive summary,analysis overview,evidential matter,assumptions,key factors,and inferences.

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

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

When a negative amount is in the base period and a positive amount is in the analysis period (or vice versa),a meaningful percent change cannot be calculated.