Exam 13: Analysis of Financial Statements

If a company is comparing its financial condition or performance to a base amount,it is using vertical analysis.

A ratio expresses a mathematical relation between two quantities and can be expressed as a percent,rate,or proportion.

Year 2 Year 1 Cash \ 37,500 36,850 Short-term investments 90,000 90,000 Accounts receivable, net 85,500 86,250 Merchandise inventory 121,000 117,000 Prepaid expenses 12,100 13,500 Plant assets 388,000 392,000 Accounts payable 113,400 111.750 Net sales 711,000 706,000 Cost of goods sold 390,000 385,500 -Refer to the following selected financial information from McCormik,LLC.Compute the company's days' sales in inventory for Year 2.(Use 365 days a year.)

Match each of the following terms with the appropriate formulas. - Net sales - Cost of goods sold Net sales

Carducci Corporation reported Net sales of $3.6 million and beginning Total assets of $0.9 million and ending Total assets of $1.3 million.The average Total asset amount is:

Match each of the following terms with the appropriate definitions. -A statement where each amount is expressed as a percent of a base amount to reveal the relative importance of each financial statement item.

Match each of the following terms with the appropriate formulas. - $\frac {\text { Income before interest expense and income taxes}} { \text { Interest expense} }$

External users of financial information:

Year 2 Year 1 Merchandise inventory 271,000 253,500 Cost of goods sold 486,400 433,100 -Refer to the following selected financial information from Graceworks Corp.Compute the company's inventory turnover for Year 2.

The following summaries from the income statements and balance sheets of Kouris Company and Brittania,Inc.are presented below. (1)For both companies for 2018,compute the: (a)Current ratio (b)Acid-test ratio (c)Accounts receivable turnover (d)Inventory turnover (e)Days' sales in inventory (f)Days' sales uncollected Which company do you consider to be the better short-term credit risk? Explain. (2)For both companies for 2018,compute the: (a)Profit margin ratio (b)Return on total assets (c)Return on common stockholders' equity Which company do you consider to have better profitability ratios? Kouris Company Consolidated Statement of Income May 31,2018 (in millions) Revenues \ 10,697.0 Cost of sales 6,313.6 Gross profit 3,383.4 Operating expenses 1,137.6 Operating income 42.9 Interest expense Other revenues and expenses 1,123.0 Income before tax Income taxes 740.1 Income before effect of accounting change Cumulative effect of accounting change, net of tax 474.0 Net income \4 74.0 Brittania, Inc. Consolidated Statement of Income January 3, 2018 (in millions) Revenues \1 33.5 Cost of sales 87.3 Gross profit 46.2 Operating expenses 37.3 Operating income 8.9 Interest expense (0.1) Other revenues and expenses 0.3 Income before tax 9.1 Income taxes 3.9 Net income \ 5.2

Net sales divided by average total assets is the:

Match the financial analysis building block most appropriately associated with each ratio. Each building block may be used more than once. -Equity Ratio

The building blocks of financial statement analysis include (1)liquidity, (2)solvency, (3)profitability,and (4)market prospects.

The evaluation of company performance and financial condition includes evaluation of (1)past and current performance, (2)current financial position,and (3)future performance and risk.

Analysis of a single financial number is often of limited value.

________ ratios include the price-earnings ratio and dividend yield.

Quick assets divided by current liabilities is the:

The greater the times interest earned ratio,the greater the risk a company is exposed to.

A company with a high inventory turnover requires a smaller investment in inventory than one producing the same sales with a lower turnover.

Financial reporting includes not only general purpose financial statements,but also information from SEC filings,press releases,shareholders' meetings,forecasts,management letters,auditor's reports,and Webcasts.