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Exam 15: Financial Statement Analysis

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Question 101

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The following selected data were taken from the financial statements of the Winter Group for the three most recent years of operations: The Year 3 net income was $242,000 and the Year 2 net income was $308,000. No dividends on common stock were declared during the 3 years. a) Determine the rate earned on assets, the rate earned on stockholders' equity, and the rate earned on common stockholders' equity for Years 2 and 3. Round to one decimal place. b) What conclusion can be drawn from these data as to the company's profitability?

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a)Rate earned on assets = Net income + I...

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Question 102

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1% b) Rate earned on total assets = Net income + Interest expense)/ Average total assets = $250,000 + 0)/$2,200,000 = 11.4% c) Rate earned on common stockholders' equity = $250,000 - $0)/$1,000,000 = 25% d) Earnings per share on common stock = $250,000/10,000 = $25 per share

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The net income was $600,000, and the de...

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Question 103

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In horizontal analysis, each item is expressed as a percentage of the

Income statement information for Sadie Company is below: Sales $175,000 Cost of goods sold 115,000 Gross profit $ 60,000 Using vertical analysis of the income statement for Sadie Company, determine the gross profit margin.

The following items were taken from the financial statements of Tilden, Inc., over a three-year period: Compute the following for each of the above time periods. a) The amount and percentage change from Year 2 to Year 3. b) The amount and percentage change from Year 1 to Year 2. Round percentages to one decimal place.

Comparative information taken from the Friction Company's financial statements is shown below: Using horizontal analysis, show the percentage change and direction increase or decrease) from Year 1 to Year 2 with Year 1 as the base year.

When the rate of return on total assets ratio is greater than the rate of return on common stockholders' equity ratio, the management of the company has effectively used leverage.

The effects of differences in accounting methods are of little importance when analyzing comparable data from competing businesses.

Why would you or why wouldn't you compare an organization like Ford Motor Company to the local car dealer "Johnson City Ford/Lincoln/Mercury" in vertical and horizontal analysis?

Leverage implies that a company

The following information was taken from Slater Company's balance sheet: $\begin{array} { | l | l | } \hline \text { Fixed assets net) } & \$ 1,250,000 \\\hline \text { Long-term liabilities } & 500,000 \\\hline \text { Total liabilities } & 572,000 \\\hline \text { Total stockhol ders' equity } & 1,680,000 \\\hline\end{array}$ Determine the company's a) ratio of fixed assets to long-term liabilities, and b) ratio of liabilities to stockholders' equity. Round your answer to one decimal place.

-Based on the above data, what is the quick ratio, rounded to one decimal point?

In a common-sized income statement, 100% is the

Based on the following data for the current year, what is the number of days' sales in inventory? Sales on account during year $1,204,500 Cost of merchandise sold during year 657,000 Accounts receivable, beginning of year 75,000 Accounts receivable, end of year 85,000 Inventory, beginning of year 85,600 Inventory, end of year

The following information pertains to Diane Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. -What is the rate earned on common stockholders' equity for Diane Company?

The tendency of the rate earned on stockholders' equity to vary disproportionately from the rate earned on total assets is

Cash and accounts receivable for Ashfall Co. are provided below: Current Year Prior Year Cash $62,400 $58,000 Accounts receivable net)42,000 50,000 Based on this information, what is the amount and percentage of increase or decrease that would be shown on a balance sheet with horizontal analysis?

A company reports the following: Income before income tax $600,000 Interest expense 150,000 Determine the number of times interest charges are earned. Round your answer to one decimal place.

Comparing dividends per share to earnings per share indicates the extent to which the corporation is retaining its earnings for use in operations.