Exam 13: Financial Analysis: The Big Picture

Which one of the following ratios would not likely be used by a short-term creditor in evaluating whether to sell on credit to a company?

If a company has a current ratio of 1.2:1, what respective effects will the borrowing of cash by short-term debt and collection of accounts receivable have on the ratio? Short-term Borrowing $\quad$ Collection of Receivable a. $\quad$ Increase $\quad$ $\quad$ $\quad$ No effect b. $\quad$ Increase $\quad$ $\quad$ $\quad$ Increase c. $\quad$ Decrease $\quad$ $\quad$ $\quad$ No effect d. $\quad$ Decrease $\quad$ $\quad$ $\quad$ Decrease

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) 30,000 Inventory 20,000 Property, plant and equipment 210,000 Total Assets \ 300,000 Liabilities and Stockholders' Equity Current liabilities \ 60,000 Long-term liabilities 90,000 Stockholders' equity-common 150,000 Total Liabilities and Stockholders' Equity \ 300,000 Income Statement Sales revenue \ 90,000 Cost of goods sold 45,000 Gross margin 45,000 Operating expenses 20,000 Net income \ 25,000 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 price earnings ratio for this company?

The following information pertains to Blue Flower 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 15,000 Property, plant and equipment 210,000 Total Assets \ 300,000 Liabilities and Stockholders' Equity Current liabilities \ 60,000 Long-term liabilities 90,000 Stockholders' equity-Common 150,000 Total Liabilities and Stockholders' Equity \ 300,000 Income Statement Sales revenue \ 121,000 Cost of goods sold 66,000 Gross margin 55,000 Operating expenses 30,000 Net income \ 25,000 Number of shares of common stock 6,000 Market price of common stock \ 20 Dividends per share on common stock 50 Cash provided by operations \ 40,000 What is the return on assets for this company?

R. Stone Corporation has income before taxes of $780,000 and an extraordinary gain of $200,000. If the income tax rate is 25% on all items, the income statement should show income before irregular items and extraordinary items, respectively, of

Inventory turnover measures the number of times on average the inventory was sold during the period.

Operating data for Panola Land Corporation are presented below 2014 2013 Sales revenue \ 800,000 \ 600,000 Cost of goods sold 480,000 390,000 Selling expenses 120,000 78,000 Administrative expenses 80,000 54,000 Income tax expense 24,000 25,000 Net income 96,000 53,000 Instructions Prepare a schedule showing a vertical analysis for 2014 and 2013.

The profit margin is calculated by dividing

The accounts receivable turnover is calculated by dividing ________________ by average ___________________.

Explain sustainable income. What relationship does this concept have to the treatment of irregular items on the income statement?

Stockholders are most interested in evaluating

Discontinued operations refers to the disposal of a __________________ of a business.

The discontinued operations section of the income statement refers to

Beta Corporation had net income of $325,000 and paid dividends to common stockholders of $50,000 in 2014. The weighted average number of shares outstanding in 2014 was 50,000 shares. Beta Corporation's common stock is selling for $45.50 per share on the New York Stock Exchange. Beta Corporation's price-earnings ratio is

For analysis of the financial statements, ratios can be classified into three types: (1)_____________ ratios, (2)_____________ ratios, and (3)______________ ratios.

Here are the comparative income statements of Georgia Development Corporation. GEORGIA DEVELOPMENT CORPORATION Comparative Income Statements For the Years Ended December 31 Net sales \ 600,000 \ 500,000 Cost of goods sold 414,000 350,000 Gross profit 186,000 150,000 Operating expenses Net income \ \ \ 30,000 Instructions (a) Prepare a horizontal analysis of the income statement data for Georgia Development Corporation using 2013 as a base. (Show the amounts of increase of decrease.) (b) Prepare a vertical analysis of the income statement data for Georgia Development Corporation for both years.

The debt to assets ratio measures

Comparisons of data within a company are an example of the following comparative basis

The financial statements of Elcamino Company appear below: ELCAMINO COMPANY Comparative Balance Sheet December 31. Cash \ 25,000 \ 40,000 Debt investments 20,000 60,000 ounts receivable (net) 50,000 30,000 ntory 140,000 170,000 and equipment (net) 170,000 200,000 Total assets \ 405,000 \ 500,00 Additional information: a. Cash dividends of $50,000 were declared and paid on common stock in 2014. b. Weighted-average number of shares of common stock outstanding during 2014 was 50,000 shares. c. Market value of common stock on December 31, 2014, was $16 per share. d. Net cash provided by operating activities for 2014 was $70,000. Instructions Using the financial statements and additional information, compute the following ratios for the Lewis Company for 2012. Show all computations. Computations 1. Current ratio_______ 2. Return on common stockholders' equity 3. Price-earnings ratio________ 4. Inventory turnover________ 5. Accounts receivable turnover_______ 6. Times interest earned_______ 7. Profit margin________ 8. Average days in inventory 9. Payout ratio_________ 10. Return on assets________ 11. Cash debt coverage______

State the effect of the following transactions on the current ratio. Use increase, decrease, or no effect for your answer. (a) Collection of an accounts receivable (b) Declaration of cash dividends (c) Additional stock is sold for cash (d) Accounts payable are paid (e) Equipment is purchased for cash (f) Inventory purchases are made for cash (g) Temporary investments are purchased for cash