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Exam 14: Financial Statement Analysis

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Question 91

Multiple Choice

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A company with working capital of $720,000 and a current ratio of 2.2 pays a $125,000 short-term liability. The amount of working capital immediately after payment is

A) $845,000
B) $595,000
C) $720,000
D) $125,000

E) B) and C)
F) A) and C)

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Question 92

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The number of days' sales in inventory is one means of expressing the relationship between the cost of goods sold and inventory.

A) True
B) False

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Question 93

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

The ratio of the market price per share of common stock on a specific date to the annual earnings per share is referred to as the price-earnings ratio.

In computing the ratio of sales to assets, long-term investments are excluded from average total assets.

Interpreting financial analysis should be considered in light of conditions peculiar to the industry and the general economic conditions.

The following information was taken from Slater Company's balance sheet: 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.

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

Which of the following is the most useful in analyzing companies of different sizes?

In the vertical analysis of a balance sheet, the base for current liabilities is total liabilities.

A change from one acceptable accounting method to another is reported

Which of the following items should be classified as an extraordinary item on an income statement?

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

The following information is available for Jase Company: Which of the following statements is correct?

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?

A decrease in the ratio of liabilities to stockholders' equity indicates an improvement in the margin of safety for creditors.

Selected data from the Carmen Company at year end are presented below: Calculate: (a) ratio of sales to assets; (b) rate earned on total assets; (c) rate earned on common stockholders' equity; (d) earnings per share on common stock. Assume the company had no preferred stock or interest expense. Round percentage values to one decimal place and dollar values to zero decimal place.

A company reports the following: Determine: (a) accounts receivable turnover (b) number of days' sales in receivables. Round your answer to one decimal place.

The independent auditor's report

Which of the following is not a characteristic evaluated in ratio analysis?