Exam 13: Analyzing and Interpreting Financial Statements

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

Information from a manufacturing company's current year income statement follows.Calculate the company's (a)profit margin ratio,(b)gross margin ratio,and (c)times interest earned. Sales \ 850,000 Cost of goods sold 455,000 Gross profit \ 395,000 Operating expenses 260,000 Operating income \ 135,000 Interest expense Income before taxes \ 103,000 Income taxes expense 12,400 Net income

Identify and explain the four building blocks of financial statement analysis.

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

Refer to the following selected financial information from Graceworks,Corp.Compute the company's days' sales in inventory for Year 2.(Use 365 days a year.) Year 2 Year 1 Merchardise\nobreakspaceirventory 271,000 253,500 Cost\nobreakspaceof\nobreakspacegoods\nobreakspacesold 486,400 433,100

Common-size statements:

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

Refer to the following selected financial information from Frankle Corp.Compute the company's working capital. Clivent Assets $~~~~~~~~~~~~$ 306,450 Plarit assets $~~~~~~~~~~~~~~~$ 338,000 Current Liabilities $~~~~~~$ 107,800 Net sales $~~~~~~~~~~~~~~~~~~~~$ 676,000 Net Income $~~~~~~~~~~~~~~~~$ 75,000

A brief focus on important analysis results and conclusions is usually included in which of the following sections of a financial statement analysis report:

If a company is comparing its financial condition or performance to a base amount in the same time period,it is using vertical analysis.

The percent change of a comparative financial statement item is computed by subtracting the base period amount from the analysis period amount,dividing the result by the base period amount and multiplying that result by 100.

Financial reporting refers to:

A corporation reports the following year-end balance sheet data.Calculate the following ratios: (a)working capital (b)acid-test ratio (c)current ratio (d)debt ratio (e)equity ratio (f)debt-to-equity ratio Cash………………………..$ 50,000 Current liabilities $ 64,000 Accounts receivable……….35,000 Long-term liabilities……….72,000 Inventory…………………..60,000 Common stock……………..100,000 Equipment………………… 140,000 Retained earnings………….49,000 Total assets………………..$285,000 Total liabilities and equity $285,000

Refer to the following selected financial information from Keller Company.Compute the company's debt to equity for Year 2. Year 2 Year 1 Total assets \ 327,800 \ 301,000 Total liabilities 171,400 169,300 Total equity 156,400 131,700

The current ratio is calculated as current liabilities divided by current assets.

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

The building blocks of financial statement analysis include (1)liquidity,(2)salability,(3)solvency,and (4)profitability.

Refer to the following selected financial information from Shakley's Incorporated.Compute the company's times interest earned for Year 2. Year 2 Year 1 Net sales \ 478,500 \ 426,250 Cost of goods sold 276,300 250,120 Irterest experse 9,700 10,700 Net incomebefore tax 67,250 52,680 Net income after tax 46,050 39,900 Total assets 317,100 288,000 Total liabilities 181,400 167,300 Total equity 135,700 120,700

Comparative calendar-year financial data for a company are shown below.Calculate the following ratios for the company for Year 2: (a)accounts receivable turnover (b)day's sales uncollected (c)inventory turnover (d)days' sales in inventory

The ability to meet short-term obligations and to efficiently generate revenues is called: