Exam 18: Financial Statement Analysis

The rate of return on total assets will be greater than the rate of return on common stockholders' equity if the company has been successful in trading on the equity at a gain.

A company has an average inventory on hand of $60000 and the days in inventory is 73 days. What is the cost of goods sold?

A technique for evaluating financial statements that expresses the relationship among selected items of financial statement data is

Pro forma income usually excludes items that the company thinks are unusual or nonrecurring.

Another name for trend analysis is horizontal analysis.

The following information pertains to Rural 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) 30,000 Inventory 25,000 Property, plant and equipment 215,000 Total Assets \ 310,000 Liabilities and Stockholders' Equity Current liabilities \ 60,000 Long-term liabilities 75,000 Stockholders' equity—common 175,000 Total Liabilities and Stockholders' Equity \ 310,000 Income Statement Sales \ 130,000 Cost of goods sold 45,000 Gross profit 85,000 Operating expenses 25,000 Net income Number of shares of common stock 5,000 Market price of common stock \ 22 Dividends per share 1.00 What is the profit margin for Rural?

A trusted employee of Outback Tours was caught in the act of embezzling funds. He confessed to earlier embezzlements but retracted the confession on the advice of his attorney. Over the course of the most recent quarter it has been determined that $20000 was embezzled. Outback Tours has suffered adverse publicity in the recent past because of serious injury to five tourists that occurred during a two week "Winter Wilds Adventure" tour. The company has therefore decided to avoid publicity and has agreed to drop all charges against the embezzling employee. In return the employee has agreed to a notation of "Terminated-Not to be Rehired" to be appended to his personnel file. Required: 1. Who are the stakeholders in the decision not to prosecute? 2. Was it ethical for the company to decide not to prosecute? Explain.

Selected information from the comparative financial statements of Fava Company for the year ended December 31 appears below: Instructions Answer the following questions relating to the year ended December 31 2017. Show computations. 1. Inventory turnover for 2017 is $\underline{\quad\quad}$ 2. Times interest earned in 2017 is $\underline{\quad\quad}$ 3. The debt to assets ratio for 2017 is $\underline{\quad\quad}$ 4. Accounts receivable turnover for 2017 is $\underline{\quad\quad}$ 5. Return on assets for 2017 is $\underline{\quad\quad}$

Stellar Inc. decided on January 1 to discontinue its telescope manufacturing division. On July 1 the division's assets with a book value of $840000 are sold for $600000. Operating income from January 1 to June 30 for the division amounted to $130000. Ignoring income taxes what total amount should be reported on Stellar's income statement for the current year under the caption Discontinued Operations?

Ale Corporation had net income of $240000 and paid dividends to common stockholders of $40000 in 2017. The weighted average number of shares outstanding in 2017 was 60000 shares. Ale Corporation's common stock is selling for $60 per share on the New York Stock Exchange. Ale Corporation's payout ratio for 2017 is

The ratio that uses weighted average common shares outstanding in the denominator is the

A measure of the percentage of each dollar of sales that results in net income is

The current ratio may also be referred to as the

The acid-test (quick) ratio

The following information was taken from the financial statements of Lawson Company: 2017 2016 Gross profit on sales \ 900,000 \ 840,000 Income before income taxes 280,000 230,000 Net Income. 240,000 216,0 Net income as a percentage of net sales 8\% 9\% Instructions (a) Compute the net sales for each year. (b) Compute the cost of goods sold in dollars and as a percentage of net sales for each year. (c) Compute operating expenses in dollars and as a percentage of net sales for each year. (Income taxes are not operating expenses).

Vertical analysis is also called

Country Company reported the following on its income statement: Income before income taxes \ 850,000 Income tax expense Net income An analysis of the income statement revealed that interest expense was $100000. Country Company's times interest earned was

Fess Hardware Store had net credit sales of $8500000 and cost of goods sold of $5000000 for the year. The Accounts Receivable balances at the beginning and end of the year were $600000 and $760000 respectively. The accounts receivable turnover was

The days in inventory is computed by multiplying inventory turnover by 365.

Variations among companies in the application of generally accepted accounting principles may reduce quality of earnings.