Exam 14: Financial Statement Analysis

Eastham Company's accounts receivablewere $600,000 at the beginning of the year and $800,000 at the end of the year.Cash sales for the year were $300,000.The accounts receivable turnover for the year was 5 times.What were Eastham Company's total sales for the year?

The gross margin percentageis calculated taking the difference between sales and cost of goods and then dividing the result by sales.

Financial statements for Narita Company appear below: Larned Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands) Sales (All on Account) \ 2570 Costs of Goods Sold \ 1790 Gross Margin \ 780 Operating Expenses \ 310 Net Operating Income \ 470 Interest Expense \ 30 Net Income before Taxes \ 440 Income Taxes (30\%) \ 132 Net Income \ 308 -Narita Company's times interest earned for Year 2 was closest to which of the following?

What will be the effect of a sale of a piece of equipment at book value for cash?

Financial statements for Laroche Company appear below: Shareholders' Equity: Larned Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands) Sales (All on Account) \ 2250 Costs of Goods Sold \ 1570 Gross Margin \ 680 Operating Expenses \ 270 Net Operating Income \ 410 Interest Expense \ 30 Net Income before Taxes \ 380 Income Taxes (30\%) \ 114 Net Income \ 266 Total dividends during Year 2 were $\$ 166,000$ , of which $\$ 10,000$ were preferred dividends. The market price of a common share on December 31, Year 2 was $\$ 150$ . -Laroche Company's dividend yield ratio on December 31,Year 2 was closest to which of the following?

Financial statements for Orantes Company appear below: Orange Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands) Sales (All on Account) \ 2510 Costs of Goods Sold \ 1750 Gross Margin \ 760 Operating Expenses \ 300 Net Operating Income \ 460 Interest Expense \ 30 Net Income before Taxes \ 430 Income Taxes (30\%) \ 129 Net Income \ 301 Total dividends during Year 2 were $\$ 181,000$ , of which $\$ 12,000$ were preferred dividends. The market price of a common share on December 31, Year 2 was $\$ 280$ . -Orantes Company's current ratio at the end of Year 2 was closest to which of the following?

Financial statements for Narlock Company appear below: Larned Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands) Sales (All on Account) \ 2250 Costs of Goods Sold \ 1570 Gross Margin \ 680 Operating Expenses \ 270 Net Operating Income \ 410 Interest Expense \ 50 Net Income before Taxes \ 360 Income Taxes (30\%) \ 108 Net Income \ 252 -Narlock Company's debt-to-equity ratio at the end of Year 2 was closest to which of the following?

The following financial data have been taken from the records of CPZ Enterprises. Accounts Receivable \ 200000 Accounts Payable \ 80000 Bonds Payable, Due in Ten Years \ 300000 Cash \ 100000 Interest Payable, Due in Three Months \ 10000 Inventory \ 440000 Land \ 250000 Notes Payable, Due in Six Months \ 50000 -What is the current ratio for CPZ Enterprises?

Several investors are in the process of organizing a new company.The investors feel that $800,000 would be adequate to finance the new company's operations.Three methods are available to finance the new company: (1.)All $800,000 could be obtained through the issuance of common shares. (2.)Common shares could be issued to provide $400,000 with the other $400,000 obtained by issuing $100 par value,l0% preferred shares. (3.)Common shares could be issued to provide $40,000 with the other $400,000 obtained by issuing bonds with an interest rate of 10%. The investors are confident that the company could earn $175,000 each year before interest and taxes.The tax rate is 40%. Required: a)If the estimates are correct,compute the net income available to common shareholders under each of the three financing methods proposed above. b)Using the income data computed in part a)above,compute the return on common shareholders' equity under each of the three methods. c)Why do methods 2 and 3 provided a greater return on common equity than does method 1? Why does method 3 provide a greater return on common equity than method 2?

Financial statements for Orange Company appear below: Orange Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands) Sales (All on Account) \ 2830 Costs of Goods Sold \ 1980 Gross Margin \ 850 Operating Expenses \ 340 Net Operating Income \ 510 Interest Expense \ 30 Net Income before Taxes \ 480 Income Taxes (30\%) \ 144 Net Income \ 336 Total dividends during Year 2 were $\$ 156,000$ , of which $\$ 18,000$ were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $\$ 100$ . -Orange Company's current ratio at the end of Year 2 was closest to which of the following?

Financial statements for AAR Company appear below: AAR Company Income Statemen For the Year Ended December 31, Year 2 (dollars in thousands) Sales (All on Account) \ 2100000 Costs of Goods Sold \ 1770000 Gross Margin \ 330000 Operating Expenses \ 130000 Net Operating Income \ 200000 Interest Expense \ 50000 Net Income before Taxes \ 150000 Income Taxes (30\%) \ 45000 Net Income \ 105000 AAR Company paid dividends of $3.15 per share during the year.The market price of the company's common shares at December 31 was $63 per share.Total assets at the beginning of the year were $1,100,000,and total shareholders' equity was $725,000.The balance of accounts receivable at the beginning of the year was $150,000.The balance in inventory at the beginning of the year was $250,000. Required: Calculate the following: a)Current ratio. b)Acid-test (quick)ratio. c)Average collection period (age of receivables). d)Inventory turnover. e)Times interest earned. f)Debt-to-equity ratio. g)Dividend payout ratio. h)Price-earnings ratio. i)Return on total assets. j)Return on common shareholders' equity. k)Was financial leverage positive or negative for the year? Explain.

Financial statements for Laroche Company appear below: Shareholders' Equity: Larned Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands) Sales (All on Account) \ 2250 Costs of Goods Sold \ 1570 Gross Margin \ 680 Operating Expenses \ 270 Net Operating Income \ 410 Interest Expense \ 30 Net Income before Taxes \ 380 Income Taxes (30\%) \ 114 Net Income \ 266 Total dividends during Year 2 were $\$ 166,000$ , of which $\$ 10,000$ were preferred dividends. The market price of a common share on December 31, Year 2 was $\$ 150$ . -Laroche Company's dividend payout ratio for Year 2 was closest to which of the following?

Financial statements for Orange Company appear below: Orange Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands) Sales (All on Account) \ 2830 Costs of Goods Sold \ 1980 Gross Margin \ 850 Operating Expenses \ 340 Net Operating Income \ 510 Interest Expense \ 30 Net Income before Taxes \ 480 Income Taxes (30\%) \ 144 Net Income \ 336 Total dividends during Year 2 were $\$ 156,000$ , of which $\$ 18,000$ were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $\$ 100$ . -Orange Company's accounts receivableturnover for Year 2 was closest to which of the following?

Financial statements for March Company appear below: March Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands) Sales (All on Account) \ 1610 Costs of Goods Sold \ 1120 Gross Margin \ 490 Operating Expenses \ 190 Net Operating Income \ 300 Interest Expense \ 50 Net Income before Taxes \ 250 Income Taxes (30\%) \ 75 Net Income \ 175 -March Company's acid-test (quick)ratio at the end of Year 2 was closest to which of the following?

Granger Company had $180,000 in sales on account last year.The beginning accounts receivablebalance was $10,000,and the ending accounts receivable balance was $18,000.The company's average collection period (age of receivables)was closest to which of the following? Do not round intermediate calculations.

If a company's bonds bear an interest rate of 8%,its tax rate is 30%,and its assets are generatingan after-tax return of 7%,what would be the leverage?

Ben Company has the following data for the year just ended: Cash \ 42,000 Accounts Receivable \ 28,000 Inventory \ 35,000 Current Ratio 2.4 to 1 Acid-Test Ratio 1.6 to 1 What were Ben Company's current liabilities?

Financial statements for March Company appear below: March Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands) Sales (All on Account) \ 1610 Costs of Goods Sold \ 1120 Gross Margin \ 490 Operating Expenses \ 190 Net Operating Income \ 300 Interest Expense \ 50 Net Income before Taxes \ 250 Income Taxes (30\%) \ 75 Net Income \ 175 -March Company's average sale period (turnover in days)for Year 2 was closest to which of the following?Round your intermediate calculations to 2 decimal places.

Financial statements for Larned Company appear below: Shareholders' Equity: Larned Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands) Sales (All on Account) \ 2930 Costs of Goods Sold \ 2050 Gross Margin \ 880 Operating Expenses \ 350 Net Operating Income \ 530 Interest Expense \ 40 Net Income before Taxes \ 490 Income Taxes (30\%) \ 147 Net Income \ 343 Total dividends during Year 2 were $\$ 263,000$ , of which $\$ 12,000$ were for preferred shares. The market price of a common share on December 31, Year 2 was $\$ 160$ . -Larned Company's return on common shareholders' equity for Year 2 was closest to which of the following?

Karl Company has total assets of $170,000 and total liabilities of $110,000.The company's debt-to-equity ratio is closest to which of the following?