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Exam 17: Analysis of Financial Statements

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Question 71

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

A) 0.75.
B) 2.63.
C) 2.34.
D) 1.34.
E) 1.75.

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Question 72

Multiple Choice

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Standards for comparisons in financial statement analysis do not include:

A) Management standards.
B) Guidelines (rules of thumb) .
C) Competitors' standards.
D) Intra-company standards.
E) Industry standards.

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Question 73

Multiple Choice

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

A corporation reports the following year-end balance sheet data. The company's debt ratio equals: $\begin{array} { l | r | l | r } \hline\text { Cash } & \$ 40,000 & \text { Curtent liabilities } & \$ 75,000 \\\hline \text { Accounts receivable } & 55,000 & \text { Iong-term liabilities } & \mathbf { 3 5 , 0 0 0 } \\\hline \text { Inventory } & 60,000 & \text { Common stock } & 100,000 \\\hline \text { Equipment } & \underline { 145,000 } & \text { Retaned eamings } & 90,000 \\\hline \text { Total assets } & \underline { \$3 00,000 } & \text { Total liabilities and equity } & \$ 300,000 \\\hline\end{array}$

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

Refer to the following selected financial information from McCormik, LLC. Compute the company's days' sales uncollected for Year 2. (Use 365 days a year.) $\begin{array}{|l|r|r|}\hline & \text { Year 2 } & {\text { Year 1 }} \\\hline \text { Cash } & \$ 37,500 & 36,850 \\\hline \text { Short-term investments } & 90,000 & 90,000 \\\hline \text { Accounts receivable, net } & 85,500 & 86,250 \\\hline \text { Merchandise inventory } & 121,000 & 117,000 \\\hline \text { Prepaid expenses } & 12,100 & 13,500 \\\hline \text { Plant assets } & 388,000 & 392,000 \\\hline \text { Accounts payable } & 113,400 & 111.750 \\\hline \text { Net sales } & 711,000 & 706,000 \\\hline \text { Cost of goods sold } & 390,000 & 385,500 \\\hline\end{array}$

Financial reporting refers to:

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

A component of operating efficiency and profitability, calculated by expressing net income as a percent of net sales, is the:

Horizontal analysis is the comparison of a company's financial condition and performance to a base amount.

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

One of several ratios that reflects solvency includes the:

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

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

Match each of the following terms with the appropriate formulas. - $\frac{\text {Annual cash dividends per share }}{\text {Market price per share }}$

Carducci Corporation reported Net sales of $3.6 million and average Total assets of $1.1 million. The Total asset turnover is:

A corporation reports the following year-end balance sheet data. The company's acid-test ratio equals: $\begin{array}{lrlr}\text { Cash } & \$ 40,000 & \text { Current liabilities } & \$ 75,000 \\\text { Accounts receivable } & 55,000 & \text { Long-term liabilities } & 35,000 \\\text { Inventory } & 60,000 & \text { Common stock } & 100,000\\\text { Equipment }&145,000&\text { Retained earnings }&90,000\\\text { Total assets }&\$300,000&\text { Total liabilities and equity }&\$300,000\\\end{array}$ A) 2.07 B) 0.37 C) 0.58 D) 1.27 E) 0.63

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

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

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.