Exam 7: Analysis of Financial Statements

The current ratio and inventory turnover ratio measure the liquidity of a firm.The current ratio measures the relation of a firm's current assets to its current liabilities and the inventory turnover ratio measures how rapidly a firm turns its inventory back into a "quick" asset or cash.

As long as sales revenues exceed all costs over part of an accounting period,a firm will avoid any cash shortage.

Changes in balance sheet accounts are necessary for

Retailers Inc.and Computer Corp.each have assets of $10,000 and a return on common equity equal to 15%.Retailers has twice as much debt and twice as many sales relative to Computer Corp.Retailers' net income equals $750,and its total asset turnover is equal to 3.What is Computer Corp.'s profit margin?

A firm has total interest charges of $10,000 per year,sales of $1 million,a tax rate of 40 percent,and a net profit margin of 6 percent.What is the firm's times-interest-earned ratio?

Selzer Inc.sells all 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.What is the firm's return on equity (ROE)?

Which of the following would be classified as a use of cash?

A stock dividend will,in and of itself,affect the amounts in which of the following accounts? (Assume the stock has a par value. )

Borg Security Systems is considering the sale of 12,000 shares of stock to finance development of a new security product.The firm has 40,000 shares of common stock outstanding,par value of $1.00 per share.The firm has $60,000 in additional paid-in capital and $80,000 in retained earnings.Borg's investment bankers estimate that new shares will bring in $5.15 per share.If Borg goes ahead with the new stock issue,what will be the change in book value per share?

All of the following represent cash outflows to the firm except

If a positive change in gross fixed assets is greater than the change in accumulated depreciation for a particular year,net fixed assets increase and this constitutes a source of funds.

Net fixed assets reflect the historical costs for property,plant,and equipment less accumulated depreciation.

A firm's current ratio has steadily increased over the past 5 years,from 1.9 five years ago to 3.8 today.What would a financial analyst be most justified in concluding?

Culver Inc.has earnings after interest but before taxes of $300.The company's before-tax times-interest-earned ratio is 7.00.Calculate the company's interest charges.

Bender Corporation had sales of $250,000 last year.They had operating costs of $100,000,an interest expense of $15,000,and had an average tax 32%.Assuming Bender wants to have a 60% payout ratio and has 1,000 shares outstanding,what is Bender's expected dividend per share?

Determining whether a firm's financial position is improving or deteriorating requires analysis of more than one set of financial statements.Trend analysis is one method of measuring a firm's performance over time.

You are given the following information about a firm: The growth rate equals 8 percent;return on assets (ROA)is 10 percent;the debt ratio is 20 percent;and the stock is selling at $36.What is the return on equity (ROE)?

Other things held constant,which of the following will not affect the quick ratio? (Assume that current assets equal current liabilities. )

Selling new stock is an equity transaction;it does not affect any asset or liability account and,therefore,does not appear on the statement of cash flows.

Financial statement analysis involves the analysis of a firm's financial position to identify its current strengths and weaknesses and to clearly identify the course of action to take advantage of those strengths and correct any weaknesses.