Exam 7: Analysis of Financial Statements

Stock dividends

A decline in the inventory turnover ratio suggests that the firm's liquidity position is improving.

Nolan Inc.has cost of goods sold of $1,000,000 and an inventory turnover of 10.0.The firm's current ratio is 3.0,while its quick ratio is 2.5.What are Nolan's current assets?

Retained earnings is the cash that has been generated by the firm through its operations which 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.

If Boyd Corporation has sales of $2 million per year (all credit)and days sales outstanding of 35 days,what is its average amount of accounts receivable outstanding (assume a 360 day year)?

Most annual reports include detailed financial data for the two most recent years,along with historical summaries of key accounting statistic for the past five or ten years.

Profitability ratios show the combined effects of liquidity,asset management,and debt management on operations.

In the event of a firm's liquidation,the order in which claimholders are paid off is

Current cash flow from existing assets is highly relevant to the investor.However,the value of the firm depends primarily upon its growth opportunities.As a result,profit projections from those opportunities are the only relevant future flows with which investors are concerned.

Funds supplied by common stockholders mainly include capital stock,paid-in capital,and retained earnings,while total equity is comprised of common equity plus preferred stock.

Which of the following statements is correct?

Ducheyne Electric recently declared a 15 percent stock dividend.On the date of the stock dividend Ducheyne had 16 million shares outstanding priced at $46 per share in the market.An accounting entry was required on the balance sheet transferring some retained earnings to the common stock account.If retained earnings were $280 million prior to the transaction,what was the dollar amount of retained earnings after the transfer?

The book value of an asset is the market value less any accumulated depreciation.

The ____ provides a good indication of the firm's ability to meet its current obligations.

When a firm pays off a loan using cash,the source of funds is the decrease in the asset account,cash,while the use of funds involves a decrease in a liability account,debt.

Tapley Dental Supply Company has the following data: Net income: $240 Sales: $10,000 Total assets: $6,000 Debt ratio: 75% TIE ratio: 2.0 Current ratio: 1.2 If Tapley could streamline operations,cut operating costs,and raise net income to $300,without affecting sales or the balance sheet (the additional profits will be paid out as dividends),by how much would its ROE increase?

On the balance sheet,total assets must always equal total liabilities.The amount remaining is what is used to finance the firm and includes equity and long-term debt.

Harvey Supplies Inc.has a current ratio of 3.0,a quick ratio of 2.4,and an inventory turnover ratio of 6.Harvey's total assets are $1 million and its debt ratio is 0.20.The firm has no long-term debt.What is Harvey's sales figure if the total cost of goods sold is 75% of sales?

Micromain Company has 10,000,000 shares of common stock authorized and 8,000,000 shares outstanding,each with a $1.00 par value.The firm's additional paid-in capital account has a balance of $18,000,000.The previous year's retained earnings account was $124,000,000.In the year just ended,Micromain generated net income of $16,000,000 and the firm has a dividend payout ratio of 40 percent.What will Micromain's book value per share be when based on the final year-end balance sheet?

Although a full liquidity analysis requires the use of a cash budget,the current and quick ratios provide fast and easy-to-use measures of a firm's liquidity position.