Exam 12: Financial Analysis: The Big Picture

One objective of the income statement is to separate the results of continuing operations from those of discontinued operations.

Vertical analysis is a technique that expresses each item in a financial statement

Using borrowed money to increase the rate of return on common stockholders' equity is called "trading on the equity."

A common measure of long-term solvency is

A comparison with other companies that provides insight into a company's competitive position is most commonly known as which of the following types of comparisons?

Salamagundi, Inc. has the following Income Statement (in millions): SALAMAGUNDI, INC. Income Statement For the Year Ended December 31, 2017 Net Sales $160 Cost of Goods Sold 100 Gross Profit 60 Operating Expenses 40 Net Income $ 20 Using vertical analysis, what percentage is assigned to net sales?

Comparisons of financial data made within a company are called

The following information pertains to Unique Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. Assets Cash and short-term investments \ 40,000 Accounts receivable (net) 25,000 Inventory 20,000 Property, plant and equipment 210,000 Total Assets \ 295,000 Liabilities and Stockholders' Equity Current liabilities \ 60,000 Long-term liabilities 85,000 Stockholders' equity-Common 150,000 Total Liabilities and Stockholders' Equity \ 295,000 Income Statement Sales revenue \ 85,000 Cost of goods sold 45,000 Gross margin 40,000 Operating expenses 20,000 Net income \ 20,000 Number of shares of common stock 6,000 Market price of common stock \ 20 Dividends per share on common stock 0.90 Cash provided by operations \ 30,000 What is the return on assets for this company?

A primary purpose of vertical analysis is to observe trends over a three-year period.

Rama Company reported the following on its income statement: Income before income taxes \ 500,000 Income tax expense 150,000 Net income \ 350,000 An analysis of the income statement revealed that interest expense was $80,000. Rama Company's times interest earned was

Which of these is not a liquidity ratio?

The following amounts were taken from the financial statements of R.Dodd Company: 2017 2016 Current liabilities \ 1,280,000 \ 1,220,000 Long-term liabilities 1,800,000 1,600,000 Interest expense 100,000 50,000 Income taxexpense 50,000 30,000 Net income 300,000 170,000 Net cash provided by operating activity 325,000 270,000 The times interest earned for 2017 is

In a common size balance sheet, total assets are represented by 100%.

Because pro forma earnings are based on specific rules, these amounts are highly reliable.

Assume the following sales data for a company: 2018 \ 980,000 2017 875,000 2016 700,000 If 2016 is the base year, what is the percentage increase in sales from 2016 to 2017?

Common size analysis expresses each item in a financial statement as a percent of a base amount.

The following information is available for Patterson Company: 2017 2016 Accounts receivable \ 360,000 \ 340,000 Inventory 280,000 320,000 Net credit sales 3,150,000 2,600,000 Cost of goods sold 1,800,000 840,000 Net income 300,000 170,000 The accounts receivable turnover for 2017 is

All of the following statements regarding changes in accounting principles are true except which of the following?

Cochran Corporation, Inc. has the following income statement (in millions): COCHRAN CORPORATION, INC. Income Statement For the Year Ended December 31, 2017 Net Sales \ 240 Cost of Goods Sold 150 Gross Profit 90 Operating Expenses \ 65 Net Income \ 25 Using vertical analysis, what percentage is assigned to cost of goods sold?

Intracompany comparisons of the same financial statement items are often useful to detect changes in financial relationships and significant trends.