Exam 13: Financial Statement Analysis

Discuss the limitations that affect financial statement analysis.

Selected financial information for Martin Company for Year 2 follows: Sales \ 498,000 Cost of goods sold 320,000 Merchandise inventory Beginning of year 72,000 End of year 80,000 Required: How many times did Martin's merchandise inventory turnover during Year 2? Round your answer to one decimal place.

The accounts receivable turnover ratio can be used to asses a firm's solvency.

Which of the following is (are)objective(s)of ratio analysis?

Indicate whether each of the following statements about financial statement analysis is

Which of the following statements regarding net margin is incorrect?

Osgood Company provided the following income statement for Year 1 and Year 2: Sales Cost of goods sold Gross margin Less operating expenses: Selling and administrative expenses Interest expense Income before tax Income tax expense Net income quad220,000 64,000 26,000 36,000 quad160,000 55,000 15,000 37,000 Required: (a)Perform vertical analysis on Osgood's income statements for Year 1 and Year 2.Round your answer to one decimal place (i.e.22.4%)

The following balance sheet information is provided for Greene Company for Year 2: Cash quad5,400 Accounts receivable 15,500 Inventory 18,000 Prepaid expenses 1,600 Pant and equipment, net of depreciation 20,200 Land Total assets Liabilities and Stockholders' Equity Accounts payable \ 4,500 Salaries payable 11,500 Bonds payable (Due in 2020) 19,000 Common stock, no par 30,000 Retained earnings Total liabilities and stockholder' equity What is the company's quick (acid-test)ratio (rounded to one decimal point)?

Which ratio measures the percentage of company's assets that are financed by debt?

Which of the following statements is correct?

Horizontal analysis is also known as:

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

When debt is used to finance the purchase of assets,the term or time span of the debt should always be shorter than the lifespan of the assets.

Which of the following statements about financial statement analysis is incorrect?

Crawford Company's current ratio for Year 2 was 1.42,which was slightly above the current ratio for similar companies in its industry.Crawford's quick ratio for Year 2 was 0.68,which is substantially lower than for similar companies in its industry.What conclusion would you draw based on this information?

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

The study of an individual item or account over several periods in the same financial year or over many years is known as:

Solvency ratios are used to analyze the long-term debt-paying ability and the composition of the financing s

Many companies have to monitor closely certain ratios,such as the current ratio,due to debt covenants.Selected transactions are provided below for a company that uses a perpetual inventory system;sells its merchandise at a selling price that exceeds cost;and had a current ratio of 1.85 and a quick ratio of 1.19 before the event occurred. Impact on Impact on Current Ratio Ouick Ratio Description of Transaction (+) or (-) or () (+) or (-) or (0) 1. Collected accounts receivable 2. Issued common stock for cash 4. Paid previously declared cash dividend 5. Paid the balance on an account payable 6. Purchased a building by issuing a long. term note 7. Purchased inventory on account 8. Purchased current marketable securities for cash 9. Sold merchandise for cash 10. Sold merchandise on account Required: In the above table,indicate whether each transaction would increase (+),decrease (-),or not affect (0)the company's current ratio and quick ratio.

Indicate whether each of the following statements about financial statement analysis is