Exam 16: Financial Statement Analysis

Wellston Company's net income last year was $300,000. The company has 100,000 shares of common stock and 30,000 shares of preferred stock outstanding. There was no change in the number of common or preferred shares outstanding during the year. The company declared and paid dividends last year of $1.90 per share on the common stock and $1.70 per share on the preferred stock. The earnings per share of common stock is closest to

ABC Company issued additional shares of stock for cash. The effect of the transaction is

Eagle Company has $9,000 in cash, $11,000 in marketable securities, $26,000 in current receivables, $34,000 in inventories, and $40,000 in current liabilities. The company's quick ratio is closest to

Indicate the type of each ratio listed below. -Price-earnings ratio

Figure 16-5.The following information that was obtained from the 2014 and 2013 financial statements of James Company, Norris Corporation, and Zorro Company: -Refer to Figure 16-5. Compare the three companies and answer the following:

An aircraft company would most likely have

MATCHING Match the classifications of ratios with each description. -Measures the earning ability of a company

Common-size statements are statements of companies of similar size and operations.

Figure 16-6 London Company provided the following income statements for its first 3 years of operation: -Refer to Figure 16-6. Prepare a vertical analysis by using net sales as the base.

Liquidity ratios measure the ability of a company to meet its current obligations.

Indicate the type of each ratio listed below. -Times-interest-earned ratio

The use of estimates, cost, alternative accounting methods, the presence of atypical data, and diversification of firms are all factors that may limit the usefulness of financial statement analysis. Identify a ratio and explain how one or more of the limiting factors can affect the usefulness of that ratio.

The _____________________ gives the number of days inventory is held before being sold.

Fastlane Company has 50,000 shares of common stock and 20,000 shares of preferred stock outstanding. There was no change in the number of common or preferred shares outstanding during the year. Preferred stockholders received dividends this year totaling $120,000. Common stockholders received dividends totaling $200,000. If the dividend payout ratio for the year was 80%, then the net income was

Figure 16-7 There were 30,000 shares of common stock outstanding throughout 2013. Dividends on common stock amounted to $21,000 and dividends on preferred stock amounted to $30,000. The market value of a share of common stock was $36 at the end of 2013. The income tax rate is 40%. The accounts receivable and inventory accounts had beginning balances of $58,500 and $101,400 respectively. Total assets at the beginning of the year were $430,500. -Refer to Figure 16-7. Required: Calculate the following ratios: A. return on sales B. return on total assets C. earnings per share D. price-earnings ratio

Kringle Company, a retailer, had cost of goods sold of $1,400,000 last year. The beginning inventory balance was $125,000 and the ending inventory balance was $142,000. The company's inventory turnover ratio was closest to

Figure 16-4.Condensed financial statements for Black Company appear below: There were 72,000 shares of common stock outstanding throughout the 2014. Dividends on common stock amounted to $320,400 and dividends on preferred stock amounted to $45,000. The market value of a share of common stock was $54 at the end of 2014. The income tax rate is 30%. -Refer to Figure 16-4. Required: Calculate the following leverage ratios for 2014:

Select the ratio that each statement below most properly satisfies. -An income statement measure of the ability of a company to service its debts

The two major forms of common-size analysis are horizontal analysis and vertical analysis. What type of information or insights can be obtained by using these two techniques of financial statement analysis? Explain how the output of horizontal analysis and vertical analysis can be compared to industry averages and/or competitive companies.

Common-size analysis expresses each item in a financial statement as a percent of a base amount.