Exam 15: Financial Statement Analysis

Days in inventory is a ratio measure that shows how quickly a company can collect its receivables.

Peartree Company provides the following data: BALANCE SHEET Dec 31,2014 Dec 31,2013 Cash \ 21,000 \ 18,000 Accounts receivable, net 31,000 35,000 Inventory 53,000 25,000 PP\&E, net 120,000 90,000 Total assets \ 225,000 \ 168,000 Additional information: • Net sales (all on account): $240,000 • Cost of goods sold: $110,000 How much is the asset turnover for 2014?

What kind of information does a company's rate of return on net sales provide?

Olivera Company provides the following data for the year 2013: Sales revenue \ 400,000 Sales returns and allowances \ 1,200 Sales discounts \ 800 Cost of goods sold \ 255,000 On a vertical analysis, what percentage would be shown for cost of goods sold?

The debt-to-equity ratio shows how much the company relies on borrowing to finance its business.

Peartree Company provides the following data: BALANCE SHEET Dec 31,2014 Dec 31,2013 Cash \ 21,000 \ 18,000 Accounts receivable, net 31,000 35,000 Inventory 53,000 25,000 PP\&E, net 120,000 90,000 Total assets \ 225,000 \ 168,000 Accounts payable \ 4,000 \ 6,000 Accrued liabilities 2,000 1,000 Long-term notes payable 84,000 90,000 Total liabilities \ 90,000 \ 97,000 Common stock \ 30,000 \ 2,000 Retained earnings 113,000 74,000 Treasury stock (8,000) (5,000) Total stockholders' equity \ 135,000 \ 71,000 Total liabilities and stockholders' equity \ 225,000 \1 68,000 - What is Peartree's debt-to-equity ratio at year-end 2014?

When comparing two companies, what kind of information does a company's rate of return on total assets provide?

Please complete the vertical analysis of the income statement data shown on the form below: Dollar amounts in millions) Revenues Amount \% of total Cost of revenues \ 6,355 Gross profit 2,370 Operating expenses: Sales and marketing expense 675 General and administrative expense 410 Research and development expense 470 Other expense 400 Total operating expenses \ 1,955 Income before income tax \ 1,030 Income tax expense 230 Net income (loss) \ 800

The accounts receivable turnover is an indicator of the ability of a company to collect cash from its credit customers.

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 price/earnings ratio for one share of common stock?

The Arlington Company prepared a common-size income statement to compare its results with its key competitor, Bardo Company. Please refer to the following data: Arlington Co. Bardo Co. Revenues 100.0\% 100.0\% Cost of goods sold 42.1\% 47.8\% Gross Profit 57.9\% 52.2\% Operating expenses: Sales and marketing expense 26.3\% 8.6\% General and administrative expense 12.0\% 10.8\% Research and development expense 4.1\% 10.2\% Total operating expenses 42.4\% 29.6\% 22.6\% Income before income tax 15.5\% 5.8\% Income tax expense 3.3\% 16.8\% Net income(loss) 12.2\% - Which of the following statements can be correctly concluded from the above data?

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

When comparing a company's results from one year to the next, what kind of information does a company's earnings per share figure provide?

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

The following is a summary of information presented on the financial statements of The Cake Company on December 31, 2014. Account 2014 2013 Current assets \ 65,000 \ 50,000 Accounts receivable 80,000 75,000 Merchandise inventory 50,000 40,000 Current liabilities 75,000 50,000 Long-term liabilities 30,000 50,000 Common stock 50,000 40,000 Retained earnings 40,000 25,000 Net sales revenue \ 525,000 \ 500,000 Cost of goods sold 400,000 395,000 Gross profit \ 125,000 \ 105,000 Selling and general expenses 45,000 50,000 Net income before income tax expense \ 80,000 \ 55,000 Income tax expense \ 24,000 16,500 Net income \ 56,000 \ 38,500 - What would horizontal analysis report with respect to net sales revenue?

If an analyst wishes to see how a company's operating expenses as a percentage of net sales have changed from one year to the next, which of the following types of financial statement analysis would be used?

The following is a summary of information presented on the financial statements of The Cake Company on December 31, 2014. Account 2014 2013 Current assets \ 65,000 \ 50,000 Accounts receivable 80,000 75,000 Merchandise inventory 50,000 40,000 Current liabilities 75,000 50,000 Long-term liabilities 30,000 50,000 Common stock 50,000 40,000 Retained earnings 40,000 25,000 Net sales revenue \ 525,000 \ 500,000 Cost of goods sold 400,000 395,000 Gross profit \ 125,000 \ 105,000 Selling and general expenses 45,000 50,000 Net income before income tax expense \ 80,000 \ 55,000 Income tax expense \ 24,000 16,500 Net income \ 56,000 \ 38,500 - What would a horizontal analysis report with respect to current assets?

Which of the following ratios is a measure of a company's ability to pay liabilities with current assets?

Arlington Company wishes to compare itself to a key competitor, but that company is much larger in size than Arlington. Please refer to the following income statement information: Arlington Co. Bardo Revenues \ 8,000 \ 46,000 Cost of revenues 3,370 22,000 Gross Profit 4,630 24,000 Operating expenses: Sales and marketing expense 2,100 3,951 General and administrative expense 960 4,98 Research and development expense 330 4,691 Total operating expenses \ 3,390 \ 13,601 Income before income tax \ 1,240 \ 10,380 Income tax expense 260 2,670 Net income/(loss) \ 980 \ 7,710 Please prepare a common-size income statement for the two companies using the following format. (Round all amounts to the nearest tenth of a percent.) Arlington Co. Bardo Co. Revenues Cost of revenues Gross Profit Operating expenses: Sales and marketing expense General and administrative expense Research and development expense Total operating expenses Income before income tax Income tax expense Net income(loss)

Which of the following BEST describes horizontal analysis?