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Exam 13: Analysis of Financial Statements

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Question 31

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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 32

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Selected current year end financial information for a company is presented below.Calculate the following company ratios: (a)Profit margin. (b)Total asset turnover. (c)Return on total assets. (d)Return on common stockholders' equity (assume the company has no preferred stock). Net income………………………………..$ 325,000 Net sales…………………………………..4,700,000 Total liabilities,beginning-year…………..550,000 Total liabilities,end-of-year……………… 530,000 Total stockholders' equity,beginning-year.760,000 Total stockholders' equity,end-of-year…..745,000

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(a)Profit margin = ($325,000/$4,700,000)...

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Question 33

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Zhang Company reported Cost of goods sold of $835,000 and average Inventory of $41,750.The Inventory turnover ratio is:

The return on total assets ratio is a profitability measure.

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

The ability to meet short-term obligations and to efficiently generate revenues is called:

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

Match each of the following terms with the appropriate formulas. - $\frac{\text { Net sales }}{\text { Average total assets }}$

Desjardin Landscaping's income statement reports net income of $75,300,which includes deductions for interest expense of $11,500 and income taxes of $34,900.Its times interest earned is:

Express the following income statement information in common-size percentages (round to nearest whole percent).Comment on the results. $\begin{array}{c} \text {Haans Corp.}\\ \text {Comparative Income Statements}\\ \text {For Years Ended December 31, 2018 and 2017}\\\begin{array}{|l|c|c|}\hline&2018&2017\\\hline \text { Sales } & \$1 , 200,000 & \$1 , 000,000 \\\hline \text { Cost of goods sold } &804,000 & 650,000 \\\hline \text { Gross profit } & \$ 396,000 & \$ 350,000 \\\hline \text { Selling expenses } & 132,000 & 120,000 \\\hline \text { Administrative expenses } & 180,000 & 150,000 \\\hline\text { Net income }&\$84,000&\$80,000\\\hline\end{array}\end{array}$

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

Working capital is computed as current liabilities minus current assets.

$\begin{array} { | l | r | r | } \hline&{ \text { Year 2 } } & { \text { Year 1 } } \\\hline \text { Cash } & \$ 37,500 & 36,850 \\\hline \text { Short-term investments } & 90,000 & 90,000 \\\hline \text { Accounts receivable, net } & 85,500 & 86,250 \\\hline \text { Merchandise inventory } & 121,000 & 117,000 \\\hline \text { Prepaid expenses } & 12,100& 13,500 \\\hline \text { Plant assets } & 388,000 & 392,000 \\\hline \text { Accounts payable } & 113,400 & 111.750 \\\hline \text { Net sales } & 711,000 & 706,000 \\\hline \text { Cost of goods sold } & 390,000 & 385,500 \\\hline\end{array}$ -Refer to the following selected financial information from McCormik,LLC.Compute the company's acid-test ratio for Year 2.

Match each of the following terms with the appropriate definitions. -The availability of resources to meet short-term obligations and to efficiently generate revenues.

The background on a company,its industry,and its economic setting is usually included in which of the following sections of a financial statement analysis report?

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

A corporation reported cash of $14,000 and total assets of $178,300 on its balance sheet.Its common-size percent for cash equals:

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

The comparison of a company's financial condition and performance to a base amount is known as:

When no value is in the base period,no percent change is computable.