Exam 15: Financial Statement Analysis

Which of the following is a "red flag" suggesting that a company may be in trouble?

In a vertical analysis of the income statement, each line item is shown as a percentage of gross profit.

If an analyst wishes to see how gross profit of a company has changed from one year to the next, vertical analysis would be the best approach.

When comparing one company to another, what kind of information does the accounts receivable turnover provide?

The price/earnings ratio indicates the:

What kind of information does a company's debt ratio provide?

Arlington Company has prepared the following common-size income statement to compare its performance with industry averages: Arlington Co. Industry Revenues 100.0\% 100.0\% Cost of goods sold 43.8\% 39.7\% Gross Profit 56.2\% 60.3\% Operating expenses: Sales and marketing expense 18.1\% 21.4\% General and administrative expense 12.0\% 14.2\% Research and development expense 4.1\% 4.0\% Total operating expenses 34.2\% 39.6\% Income before income tax 22.0\% 20.7\% Income tax expense 4.4\% 4.2\% Net income(loss) 17.6\% 16.5\% - This is an example of benchmarking.

Partridge Company provides the following information for the year 2014: Net income: \ 31,200 Market price of common stock: \ 12.00/ share Dividends paid: \ 0.80/ share Common stock outstanding at January 1,2014: 110,000 shares Common stock outstanding at December 31,2014: 150,000 shares (No preferred stock issued) - How much was the earnings per share for 2014?

If an analyst wishes to see a company's current assets as a percentage of total assets, a vertical analysis would be the best approach.

Oglethorpe Company reports the following information from the vertical analysis of their income statement: Net income: 4.2 % in 2014 3.9% in 2013 Which of the following statements could be logically concluded from the above data?

ABC has net sales on account of $1,200,000. The average net account receivables are $600,000. The days' sales in receivables is:

A company has $510,000 in Average common stockholders' equity, Net income of $312,000, and Preferred dividends paid of $15,000. What is the rate of return on common stockholders' equity?

Benchmarking is the comparison of a company's current year results with an earlier year's performance.

The price/earnings ratio is a measure that is valuable to investors when making investment decisions.

Which of the following BEST describes trend analysis?

The net income for a company was $540,000 this year and $630,000 last year. Net income decreased by 17%.

If you are comparing your company's results with those of other companies in the industry, the process is called:

Olivera Company provides the following data for the year 2013: Net sales revenue \ 398,000 Cost of goods sold \ 255,000 Operating expenses \ 95,000 Income tax expense \ 9,000 - On a vertical analysis, what percentage would be shown for net income?

Peartree Company provides the following income statement for the year 2014: Sales revenue \ 240,000 Cost of goods sold 110,000 Gross profit \ 130,000 Operating expenses Salary expense 45,000 Depreciation expense 12,000 Other operating expenses 23,000 Total operating expenses 80,000 Operating income 50,000 Gain on sale of plant assets 5,000 Interest expense (1,000) Net income before income tax \ 54,000 Income tax expense 5,000 Net income(loss) \ 49,000 - How much is the times-interest-earned ratio?

Portofino Company provides the following comparative income statement data. Please complete a horizontal analysis using the format shown here: Amount of Increase (Dollar cmounts in millions) 2014 2013 (Decrease) Percentage Revenues \ 6,355 \ 4,920 Cost of revenues 3,370 2,200 Gross Profit 2,985 2,720 Operating expenses: Sales and marketing expense 675 580 General and administrative expense 410 425 Research and development expense 470 390 Other expense 400 695 Total operating expenses \ 1,955 \ 2,090 Income before income tax \ 1,030 \ 630 Income tax expense 230 210 Net income (loss) \ 800 \ 420