Exam 14: Financial Statement Analysis

When calculating the return on total assets,the after-tax effect of interest expense must be subtracted from net income.

Financial statements for Oratz Company appear below: Oratz Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands) Sales (All on Account) \ 1630 Costs of Goods Sold \ 1140 Gross Margin \ 490 Operating Expenses \ 190 Net Operating Income \ 300 Interest Expense \ 30 Net Income before Taxes \ 270 Income Taxes (30\%) \ 81 Net Income \ 189 Total dividends during Year 2 were $\$ 139,000$ , of which $\$ 6,000$ were preferred dividends. The market price of a common share on December 31, Year 2 was $\$ 260$ . -Oratz Company's average sale period (turnover in days)for Year 2 was closest to which of the following?

The acid-test ratio is a test of the quality of accounts receivable-in other words,whether they are likely to be collected.

Selected data for the MK Company follow: Current Year Prior Year Preferred Shares, 8\% Par Value \ 50 \ 250000 \ 250000 Common Shares, Per Value \ 10 \ 500000 \ 500000 Retained Earnings at End of Year \ 257000 \ 240000 Net Income \ 102000 \ 90000 Dividends Paid on Preferred Shares \ 20000 \ 20000 Dividends Paid on Common Shares \ 65000 \ 60000 Qouted Market Price per Common Share at Year End \2 5 \2 0 -What is the dividend yield ratio on common shares for the current year,rounded to the nearest tenth of a percent?

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 current ratio at the end of Year 2 was closest to which of the following?

Financial statements for Oratz Company appear below: Oratz Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands) Sales (All on Account) \ 1630 Costs of Goods Sold \ 1140 Gross Margin \ 490 Operating Expenses \ 190 Net Operating Income \ 300 Interest Expense \ 30 Net Income before Taxes \ 270 Income Taxes (30\%) \ 81 Net Income \ 189 Total dividends during Year 2 were $\$ 139,000$ , of which $\$ 6,000$ were preferred dividends. The market price of a common share on December 31, Year 2 was $\$ 260$ . -Oratz Company's accounts receivableturnover for Year 2 was closest to which of the following?

Arquandt Company's net income last year was $550,000.The company had 150,000 common shares and 50,000 preferred shares 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 $1.20 per common share and $1.70 per preferred share.The earnings per common share was closest to which of the following?

During the year just ended,James Company purchased $425,000 of inventory.The inventory balance at the beginning of the year was $175,000.If the cost of goods sold for the year was $450,000,what was the inventory turnover for the year?

Financial statements for Rarig Company appear below: Rarig Company Income Statement For the Year Ended December 31, Year (dollars in thousands) Sales (All on Account) \ 1800 Costs of Goods Sold \ 1260 Gross Margin \ 540 Operating Expenses \ 210 Net Operating Income \ 330 Interest Expense \ 50 Net Income before Taxes \ 280 Income Taxes (30\%) \ 84 Net Income \ 196 Required: Calculate the following for Year 2: 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.

Frabine Company had $150,000 in sales on account last year.The beginning accounts receivablebalance was $14,000,and the ending accounts receivable balance was $18,000.The company's accounts receivable turnover was closest to which of the following?

Financial statements for Oratz Company appear below: Oratz Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands) Sales (All on Account) \ 1630 Costs of Goods Sold \ 1140 Gross Margin \ 490 Operating Expenses \ 190 Net Operating Income \ 300 Interest Expense \ 30 Net Income before Taxes \ 270 Income Taxes (30\%) \ 81 Net Income \ 189 Total dividends during Year 2 were $\$ 139,000$ , of which $\$ 6,000$ were preferred dividends. The market price of a common share on December 31, Year 2 was $\$ 260$ . -Oratz Company's times interest earned for Year 2 was closest to which of the following?

Erambo Company has $11,000 in cash,$6,000 in marketablesecurities,$27,000 in current receivables,$8,000 in inventories,and $51,000 in current liabilities.The company's acid-test (quick)ratio is closest to which of the following?

Fulton Company's price-earnings ratio is 8.0,and the market price of its common shares is $32.The company has 3,000 shares of preferred shares outstanding,with each share receiving a dividend of $3.What is the earnings per common share?

Grapp Company had $130,000 in sales on account last year.The beginning accounts receivablebalance was $18,000,and the ending accounts receivable balance was $16,000.The company's average collection period (age of receivables)was closest to which of the following? Do not round intermediate calculations.

Financial statements for Praeger Company appear below: Praeger Company Income Statemen For the Year Ended December 31, Year 2 (dollars in thousands) Sales (All on Account) \ 100 Costs of Goods Sold \ 770 Gross Margin \ 330 Operating Expenses \ 130 Net Operating Income \ 200 Interest Expense \ 50 Net Income before Taxes \ 150 Income Taxes (30\%) \ 45 Net Income \ 105 Dividends during Year 2 totalled $45,000,of which $10,000 were preferred dividends.The market price of a common share on December 31,Year 2 was $30. The preferred shares are convertible to common shares on the basis of 2 common shares for each preferred share. Required: Calculate the following for Year 2: a)Basic earnings per common share. b)Fully diluted earnings per common share. c)Price-earnings ratio (use basic earnings per share). d)Dividend payout ratio (use basic earnings per share). e)Dividend yield ratio. f)Return on total assets. g)Return on common shareholders' equity. h)Book value per share. i)Working capital. j)Current ratio. k)Acid-test (quick)ratio. l.)Accounts receivable turnover. m)Average collection period (age of receivables). n)Inventory turnover. o)Average sale period (turnover in days). p)Times interest earned. q)Debt-to-equity ratio.

PFM Company has sales of $210,000,interest expense of $8,000,a tax rate of 30%,and a net profit after tax of $35,000.What is PFM Company's times interest earned ratio?

Shelzo Inc.,a manufacturer of construction equipment is considering the purchase of one of its suppliers,Raritron Industries.The purchase has been given preliminary approval by Shelzo's board of directors,and several discussions have taken place between the management of both companies.Raritron has submitted financial data for the past several years.Shelzo's controller has analyzed Raritron's financial statements and prepared the following ratio analysis comparing Raritron's performance with the industry averages. Year 3 Year 2 Year 1 Average Return on 13.03 13.02 12.98 12.96 common shareholders' equity Average sale period 51.16 47.29 42.15 38.63 limes interest earned 3.87 3.46 3.28 3.56 Price-earnings ratio 10.96 11.23 11.39 11.54 Debt-to-equity ratio 0.50 0.46 0.4 80.57 Accounts receivable turnover 6.98 7.25 7.83 7.78 Current ratio 1.65 1.95 1.70 2.30 Dividend yield ratio 2.08 2.06 2.12 2.25 Required: Using the information provided above for Raritron Industries: a)(1.)Identify the two ratios from the above list that would be of most interest to short-termcreditors. (2.)Explain what these two ratios measure. (3.)What do these two ratios indicate about Shelzo Inc.? b)(1.)Identify the three ratios from the above list that would be of most interest to shareholders. (2.)Explain what these three ratios measure. (3.)What do these three ratios indicate about Shelzo Inc.? c)(1.)Identify the two ratios from the above list that would be of most interest to long-term creditors. (2.)Explain what these two ratios measure. (3.)What do these two ratios indicate about Shelzo Inc.?

Selected data for the MK Company follow: Current Year Prior Year Preferred Shares, 8\% Par Value \ 50 \ 250000 \ 250000 Common Shares, Per Value \ 10 \ 500000 \ 500000 Retained Earnings at End of Year \ 257000 \ 240000 Net Income \ 102000 \ 90000 Dividends Paid on Preferred Shares \ 20000 \ 20000 Dividends Paid on Common Shares \ 65000 \ 60000 Qouted Market Price per Common Share at Year End \2 5 \2 0 -What is the book value per share for the current year,rounded to the nearest cent?

Only credit sales (i.e.,sales on account)are included in the computation of the accounts receivable turnover.

McGraw Electronics showed Bonds Payable of $7,500,000 in 2011 and $8,000,000 in 2010 on its comparative Balance Sheet.The percentage change is closest to: