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Exam 15: Financial Statement Analysis

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Question 1

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The following data are taken from the financial statements: a)b)Determine for each year 1) the inventory turnover, round answer to one decimal place. 2) the number of days' sales in inventory. Round intermediate calculations to two decimal places and the final answer to whole number. Comment on the favorable and unfavorable trends revealed by the data.

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a) ​
b) Sales decreased while...

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Question 2

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Match each ratio that follows to its use items a-h) . Items may be used more than once. -earnings per share EPS) on common stock

A) assess the profitability of the assets
B) assess the effectiveness in the use of assets
C) indicate the ability to meet currently maturing obligations
D) indicate the margin of safety to creditors
E) indicate instant debt-paying ability
F) assess the profitability of the investment by common stockholders
G) indicate future earnings prospects
H) indicate the extent to which earnings are being distributed to common stockholders

I) A) and D)
J) C) and H)

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Question 3

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An analysis in which all the components of an income statement are expressed as a percentage of sales is a

A change from one acceptable accounting method to another is reported

Match each definition that follows with the term a-h) it defines. -focuses on a company's ability to generate net income

Solvency analysis focuses on the ability of a business to pay its current and noncurrent liabilities.

Balance sheet and income statement data indicate the following: Bonds payable, 10% due in two years) $1,000,000 Preferred 5% stock, $100 par no change during year) 300,000 Common stock, $50 par no change during year) 2,000,000 Income before income tax for year 550,000 Income tax for year 80,000 Common dividends paid 50,000 Preferred dividends paid 15,000 Based on the data presented above, what is the number of times bond interest charges were earned round to one decimal point) ?

Percentage analyses, ratios, turnovers, and other measures of financial position and operating results are

What is a major advantage of using percentages rather than dollar changes in doing horizontal and vertical analysis?

Match each definition that follows with the term a-h) it defines. -occurs when a company abandons a segment

Match each ratio that follows to its use items a-h) . Items may be used more than once. -ratio of liabilities to stockholders' equity

Unusual items affecting the prior period's income statement consist of errors and changes in accounting principles.

Dollar amounts of working capital are difficult to assess when comparing companies of different sizes or in comparing such amounts with industry figures.

Match each definition that follows with the term a-h) it defines. -requires a restatement of prior-period financial statements

The numerator of the rate earned on common stockholders' equity ratio is

Based on the following data for the current year, what is the inventory turnover? Sales on account during year $700,000 Cost of merchandise sold during year 270,000 Accounts receivable, beginning of year 45,000 Accounts receivable, end of year 35,000 Inventory, beginning of year 90,000 Inventory, end of year

The analysis of increases and decreases in the amount and percentage of comparative financial statement items is referred to as horizontal analysis.

Richards Corporation had net income of $250,000 and paid dividends to common stockholders of $50,000. It had 50,000 shares of common stock outstanding during the entire year. Richards Corporation's common stock is selling for $35 per share. The price-earnings ratio is

The ratio of the sum of cash, receivables, and marketable securities to current liabilities is referred to as the current ratio.

Vertical analysis refers to comparing the financial statements of a single company over several years.