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Exam 13: Analysis of Financial Statements

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Question 51

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Financial statement analysis is the application of analytical tools to general-purpose financial statements and related data for making business decisions.

A) True
B) False

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Question 52

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The average number of times a company's inventory is sold during an accounting period,calculated by dividing cost of goods sold by the average inventory balance,is equal to the:

A) Accounts receivable turnover
B) Inventory turnover
C) Days' sales uncollected
D) Current ratio
E) Price earnings ratio

F) A) and D)
G) C) and E)

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Question 53

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Industry standards for financial statement analysis:

Standards for comparison are necessary when making judgments about a company's financial performance.

A company reports basic earnings per share of $3.50,cash dividends per share of $0.75,and a market price per share of $64.75.The company's dividend yield equal is equal to 21.4%.

A company reported net income of $78,000 and had 15,000 common shares outstanding throughout the current year.At year-end,the price per share of the company's stock was $49.40.What is the company's year-end price-earnings ratio?

Annual cash dividends per share divided by market price per share is equal to the:

Express the following balance sheets for Alberts Company in common-size percents. $\begin{array}{c}\text { ALBERTS COMPANY}\\\text { Balance Sheet}\\\text { December 31,2013 and 2014}\\\begin{array}{|l|r|r|}\hline&2013&2014\\\hline\text { Assets }\\\hline\text { Cash } & \$ 22,000 & \$ 43,000 \\\hline \text { Accounts receivable } & 42,000 & 38,000 \\\hline \text { Merchandise inventory } & 52,000 & 61,000 \\\hline \text { Prepaid insurance } & 9,000 & 6,000 \\\hline \text { Long-term investments } & 20,000 & 49,000 \\\hline \text { Plant assets (net) } & 218,000 & 218,000 \\\hline \text { Total assets } & \$ 363,000 & \$ 415,000 \\\hline\\\hline \text { Liabilities and Equity } & & \\\hline \text { Current liabilities } & \$ 75,000 & \$ 62,000 \\\hline \text { Long-term liabilities } & 36,000 & 45,000 \\\hline \text { Common stock } & 150,000 & 150,000 \\\hline \text { Retained earnings } & 102,000 & 158,000 \\\hline \text { Total liabilities and equity } & \$ 363,000 & \$ 415,000 \\\hline \end{array}\end{array}$

Ratios can be expressed as a percent,rate,or proportion.

Ratios analysis eliminates all of the differences of GAAP versus IFRS financial reporting.

A company had a profit margin of 8%.If net income equaled $40,000 and average total assets equaled $332,500,how much were net sales?

Profitability is the ability to generate positive market expectations.

Net income divided by net sales is equal to the:

Expropriation of property by a foreign government is considered an extraordinary item.

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

General-purpose financial statements include the (1)___________________,(2)___________________,(3)_____________________________,(4)________________________ and (5)_____________________________.

Calculate the percent increase or decrease for each of the following financial statement items: $\begin{array} { | l | r | r | } \hline & { 2014 } &2013 \\\hline \text { Cash } & \$ 37,500 & \$ 30,000 \\\hline \text { Accounts receivable } & 63,000 & 52,500 \\\hline \text { Inventory } & 61,500 & 90,000 \\\hline \text { Accounts payable } & 35,100 & 27,000 \\\hline \text { Sales } & 187,500 & 150,000 \\\hline \text { Equipment } & 165,000 & 125,000 \\\hline\end{array}$

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

Extraordinary items:

Horizontal analysis is used to reveal changes in the relative importance of each financial statement item.