Exam 9: Financial Statement Analysis

Which ratios measure a company's long-term debt-paying ability and its financing structure?

Which of the following is a potential limitation of financial statement analysis?

The Poole Company reported the following income for Year 2: Sales \3 8,000 Cost of goods sold Gross margin \2 8,400 Selling and administrative expense Operating income \ 16,800 Interest expense Income before taxes \1 1,200 Income tax expense Net income What is the company's net margin? (Round your answer to 2 decimal places.)

Common methods of financial statement analysis include all of the following except:

The quick ratio, although similar to the current ratio, is more conservative.

The following balance sheet information was provided by Western Company: Assets Year 2 Year 1 Cash \ 4,000 \ 2,000 Accounts receivable 15,000 12,000 Inventory \ 35,000 \ 38,000 Assuming Year 2 net credit sales totaled $270,000, what was the company's average days to collect receivables? (Use 365 days in a year. Do not round your intermediate calculations.)

Profitability ratios attempt to assess the company's ability to generate earnings.

A banker may perform a financial ratio analysis to assess a firm's ability to repay debt in a timely manner.

The return on investment measure is also referred to as:

The following information applies to Acorn Construction Company (ACC): Year 2 Year 1 Net sales \ 880,000 \ 600,000 Income before interest and taxes 127,500 84,000 Net income 59,000 52,000 Interest expense 24,500 15,000 Stockholders' equity, December 31 810,300 725,000 Common stock 750,300 700,000 Preferred stock dividends 24,000 24,000 Information on the number of shares outstanding is provided below: Average number of shares outstanding Year 1 $\quad$$\quad$ 38,000 Average number of shares outstanding year 2 $\quad$$\quad$ 33,000 Required: Compute the following ratios for ACC for Year 2 and Year 1: Number of times interest is earnedEarnings per sharePrice-earnings ratio (Market prices: Year 2 $17.50 per share, Year 1 $15.00 per share)Return on equityNet margin

The most frequently quoted measure of earnings performance is the stockholders' equity ratio.

Financial ratios can be used to assess which of the following aspects of a firm's performance?