Exam 14: Financial Statement Analysis

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

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 40,000 Property, plant and equipment 220,000 Total Assets \ 330,000 Liabilities and Stockholders' Equity Current liabilities \ 60,000 Long-term liabilities 70,000 Stockholders' equity?common 200,000 Total Liabilities and Stockholders' Equity \ 330,000 Income Statement Sales \ 90,000 Cost of goods sold 44,000 Gross profit 46,000 Operating expenses \ 30,000 Net income \ 16,000 Number of shares of common stock 5,000 Market price of common stock \ 22 Dividends per share 1.00 What is the return on common stockholders' equity for Rural?

Vertical analysis is useful in making comparisons of companies of different sizes.

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

In horizontal analysis, if an item has a negative amount in the base year, and a positive amount in the following year, no percentage change for that item can be computed.

The acid-test (quick) ratio

In analyzing the financial statements of a company, a single item on the financial statements

The following amounts were taken from the financial statements of Leaf Company: 2020 2019 Total assets \ 900,000 \ 1,000,000 Net sales 840,000 650,000 Gross profit 352,000 320,000 Net income 138,600 117,000 Weighted average number of common shares outstanding 90,000 90,000 Market price of common stock \ 35 \ 39 The profit margin for 2020 is

The following information pertains to Ortiz 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 \ 45,000 Accounts receivable (net) 30,000 Inventory 20,000 Property, plant and equipment 210,000 Total Assets \ 305,000 Liabilities and Stockholders' Equity Current liabilities \ 50,000 Long-term liabilities 95,000 Stockholders' equity-common 160,000 Total Liabilities and Stockholders' Equity \ 305,000 Income Statement Sales \ 120,000 Cost of goods sold 66,000 Gross profit 54,000 Operating expenses 30,000 Net income \ 24,000 Number of shares of common stock 6,000 Market price of common stock \ 20 Dividends per share \ 50 What is the current ratio for Ortiz?

Blaney Clothing Store had a balance in the Accounts Receivable account of $437,500 at the beginning of the year and a balance of $500,000 at the end of the year. Net credit sales during the year amounted to $3,000,000. The average collection period of the receivables in terms of days was

Quasar Corporation had net income of $210,000 and paid dividends to common stockholders of $63,000 in 2020. The weighted average number of shares outstanding in 2020 was 50,000 shares. Quasar Corporation's common stock is selling for $30 per share on the New York Stock Exchange. Quasar Corporation's payout ratio for 2020 is

Vertical analysis is a more sophisticated analytical tool than horizontal analysis.

Which of the following is not a profitability ratio?

Beacon, Inc. disposes of an unprofitable segment of its business. The operation of the segment suffered a $350,000 loss in the year of disposal. The loss on disposal of the segment was $150,000. If the tax rate is 30%, and income before income taxes was $2,300,000,

Ratios are used as tools in financial analysis

Swiss Clothing Store had a balance in the Accounts Receivable account of $920,000 at the beginning of the year and a balance of $980,000 at the end of the year. Net credit sales during the year amounted to $6,650,000. The average collection period of the receivables in terms of days was

In performing a vertical analysis, the base for sales returns and allowances is

Profitability ratios are frequently used as a basis for evaluating management's operating effectiveness.

The following information pertains to Ortiz 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 \ 45,000 Accounts receivable (net) 25,000 Inventory 20,000 Property, plant and equipment 270,000 Total Assets \ 360,000 Liabilities and Stockholders' Equity Current liabilities \ 50,000 Long-term liabilities 90,000 Stockholders' equity-common 220,000 Total Liabilities and Stockholders' Equity \ 360,000 Income Statement Sales \ 150,000 Cost of goods sold 66,000 Gross profit 84,000 Operating expenses 29,000 Net income \ 55,000 Number of shares of common stock 6,000 Market price of common stock \ 20 Dividends per share .50 What is the return on common stockholders' equity for Ortiz?

If a company has sales of $110 in 2019 and $154 in 2020, the percentage increase in sales from 2019 to 2020 is 140%.