Exam 13: Financial Statement Analysis

Apple Company had terms of net 60 days for customers.The number of days' sales in accounts receivable for Apple was 42 days.Apple is efficient in the collection of its receivables.

The amount of working capital is more meaningful to users than the current ratio because it provides information on the composition of the current accounts.

The income number used in the rate of return on assets is income after interest expense is added back.

Inventories and prepaid assets are excluded from the numerator used to compute the quick ratio.

Service-oriented companies have different needs than product-oriented companies when analyzing financial statements. REQUIRED: Why is this true? Give an example of a financial ratio that is meaningless to a service business.

The analysis of common-size statements is called horizontal analysis.

Vertical analysis is a comparison of financial statement items for a single company over a period of time.

The FASB requires a separate note in the financial statements to show the effects of inflation so that investors are able to compare statements more accurately.

Assume the current ratio for Horizon Surf Supplies is 2 to 1.If the company purchased supplies on credit, the effect of this transaction is to:

Horizontal analysis is analysis

All line items in common-size comparative income statements are stated as a percentage of net income.

Which of the following profitability ratios is most useful in indicating the "quality" of a company's earnings?

Sunshine Farm Supply Following are selected data from the financial statements of Sunshine Farm Supply: -Refer to the data for Sunshine Farm Supply. Which of the following would result from a vertical analysis of its income statement?

Discuss the common reporting characteristics of discontinued operations and extraordinary items in the financial statements.

Which of the following statements is true regarding vertical analysis?

Solvency and liquidity differ in a company's ability

A company with a capital structure that shifts more toward debt financing will appear to be in a stronger position to pay interest and any principal amount that may be maturing by using its cash flows generated by operating activities.

Which of the following statements is true?

One measure of a company's overall long-term financial health is the debt-to-equity ratio.

What do profitability ratios measure? Explain.