Exam 2: Analysis of Financial Statements

Retained earnings is the amount of cash that has been generated by the firm through its operations but has not been paid out to stockholders as dividends. Retained earnings are kept in cash or near cash accounts, and thus these cash accounts, when added together, will always be equal to the total retained earnings of the firm. 

The degree to which the managers of a firm attempt to magnify the returns to owners' capital through the use of financial leverage is captured in debt management ratios. 

Which of the following actions can be considered a source of cash when constructing a statement of cash flows?

Which of the following statements is true about the values recorded in the balance sheet of a firm?

Which of the following statements is true about the annual report of a company?

Sapphire Industries Ltd. has a net income of $60 million and the total depreciation on its assets is $20 million. The net cash flow of Sapphire Industries is:

Bicksler Corporation has a current ratio of 2.0 on July 21 of the current year. On July 22, Bicksler purchased (and received) raw materials on credit from its supplier. Assuming all other things are equal, how will this transaction affect the current ratio of Bicksler?

Violet Solutions Ltd. has net sales of $850 million, variable operating costs of $475 million, and fixed operating costs including depreciation of $100 million. What is the net operating income of Violet Solutions?

Which of the following accounting principles does the Securities and Exchange Commission (SEC) require U.S. firms to use when filing their financial statements?

Which of the following statements is true regarding debt ratios?

Emerald Corporation's current ratio is 0.5, while Ruby (Emerald's competitor) Company's current ratio is 1.5. Both firms want to "window dress" their coming end-of-year financial statements. As part of their window dressing strategy, each firm will double its current liabilities by adding short-term debt and placing the funds obtained in the cash account. Which of the statements below best describes the actual results of these transactions?

Which of the following financial statements is prepared to show the changes in the common equity accounts between balance sheet dates?

The equity section of a firm's balance sheet contains _____. 

Amber Devices Ltd. has total assets worth $900 million and total liabilities worth $475 million at the end of December 31. What is the amount of money received by the stockholders, if Amber liquidates all of its assets for $850 and pays off all of its outstanding debt at book value?

Which of the following mathematical expressions calculates the net cash flow if depreciation is the only noncash item in a firm's income statement?

Which of the following statements is true about net worth?

An inventory turnover ratio of 8.5 times indicates that:

If a company has a quick ratio of 1.0 and a current ratio of 2.0, then:

Selzer Inc. sells all of its merchandise on credit. It has a profit margin of 4 percent, days sales outstanding equal to 60 days, receivables of $150,000, total assets of $3 million, and a debt ratio of 0.64. The firm's return on equity (ROE) is:

Techniques employed by firms to make their financial statements look better than they actually are, are called: