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Exam 17: Analysis of Financial Statements

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Question 61

Multiple Choice

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Intra-company standards for financial statement analysis:

A) Are set by the company's industry through published statistics.
B) Are often set by competitors.
C) Are published by analyst services such as Standard & Poor's.
D) Are based on a company's prior performance and relations between its financial items.
E) Are based on rules of thumb.

F) B) and D)
G) None of the above

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Question 62

Multiple Choice

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

A) Profit margin.
B) Price-dividends ratio.
C) Price-earnings ratio.
D) Dividend yield ratio.
E) Earnings per share.

F) A) and C)
G) None of the above

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Question 63

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Internal users of accounting information make the strategic and operating decisions of a company.

Zhang Company reported Cost of goods sold of $835,000 and ending Inventory of $41,750. The Days' sales in inventory (rounded to whole days) is:

Yeats Corporation's sales in Year 1 were $396,000 and in Year 2 were $380,000. Using Year 1 as the base year, the percent change for Year 2 compared to the base year is:

Vertical analysis is used to reveal patterns in data covering two or more successive periods.

Refer to the following selected financial information from Dodge Company. Compute the company's acid-test ratio. $\begin{array}{|l|r|}\hline\\\hline \text { Cash } & \$ 42,250 \\\hline \text { Short-term investments } & 60,000 \\\hline \text { Accounts receivable, net } & 79,500 \\\hline \text { Merchandise inventory } & 115,000 \\\hline \text { Prepaid expenses } & 9,700 \\\hline \text { Accounts payable } & 111,400\\\hline\end{array}$

Three of the most common tools of financial analysis include horizontal analysis, vertical analysis, and ratio analysis.

If a company is comparing this year's financial performance to last year's financial performance, it is using horizontal analysis.

The base amount for a common-size balance sheet is usually total assets.

Financial statements with data for two or more successive accounting periods placed in columns side by side, sometimes with changes shown in both dollar amounts and percentages, are referred to as:

Comparative financial statements are reports that show financial amounts in side by side columns on a single statement for analysis purposes.

Efficiency refers to how productive a company is in using its assets, and is usually measured relative to how much revenue is generated from a certain level of assets.

A company's sales in Year 1 were $250,000 and in Year 2 were $287,500. Using Year 1 as the base year, the percent change for Year 2 compared to the base year is:

Match each of the appropriate definitions with terms.

Selected current year company information follows: $\begin{array}{l|r}\text { Net income } & \$ 15,953 \\\hline \text { Net sales } & 712,855 \\\hline \text { Total liabilities, beginning-year } & 83,932 \\\hline \text { Total liabilities, end-of-year } & 103,201 \\\hline \text { Total stockholders' equity, beginning-year } & 198,935 \\\hline \text { Total stockholders' equity, end-of-year } & 121,851\\\end{array}$ The return on total assets is:

In horizontal analysis the percent change is computed by:

Analysis of a single financial number is often of limited value.

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

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