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Exam 13: Analysis of Financial Statements

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Question 101

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

A) True
B) False

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Question 102

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Evaluation of company performance does not include analysis of (1) past and current performance, (2) current financial position, and (3) future performance and risk.

A) True
B) False

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Question 103

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What are the four standards for comparisons in financial analysis? Give an example of each.

The following current year information is available from a manufacturing company: $\begin{array} { | l | r | } \hline \text { Sales } & \$ 740,000 \\\hline \text { Gross profit on sales } & 276,000 \\\hline \text { Operating income } & 64,000 \\\hline \text { Income before taxes } & 44,000 \\\hline \text { Net income } & 33,600 \\\hline \text { Accounts Receivable, beginning-year } & 58,000 \\\hline \text { Accounts Receivable, end-of-year } & 72,000 \\\hline\end{array}$ Calculate the company's accounts receivable turnover and its days' sales uncollected.

An advantage of common-size statements is that they show patterns in data across periods.

The comparative income statements for Silverlight Company are shown below. Calculate the following ratios for Year 2: (a) profit margin (b) gross margin (c) times interest earned.

________ ratios include the price-earnings ratio and dividend yield.

Financial information for Sigma Company is presented below. Calculate the following ratios for Year 2: (a) Inventory turnover. (b) Accounts receivable turnover. (c) Return on total assets. (d) Times interest earned. (e) Total asset turnover.

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:

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

External users of accounting information make the strategic and operating decisions of a company.

A trend percent is calculated by dividing the analysis period amount by the base period amount and multiplying the result by 100.

Gains and losses that are neither unusual nor infrequent are reported as:

The building blocks of financial statement analysis include (1) liquidity, (2) solvency, (3) profitability, and (4) market prospects.

Vertical analysis is the comparison of a company's financial condition and performance across time.

Industry standards for financial statement analysis:

Liquidity refers to the availability of resources to meet short-term cash requirements.

A company reports basic earnings per share of $3.50, cash dividends per share of $1.25, and a market price per share of $64.75. The company's dividend yield equals:

Refer to the following selected financial information from Mojave Corp. Compute the company's times interest earned. $\begin{array}{lr}\text { Interest expense } & \$ 9,100 \\\text { Income tax expense } & 22,700 \\\text { Net income after tax } & 56,500\end{array}$

Net income divided by average total assets is: