Exam 13: Financial Statement Analysis

Solvency is the company's ability to pay its current debts when they become due.

You want to know whether selling and administrative expenses were reasonable for the past year,based on the level of sales.The best analysis for obtaining this information is

In a vertical analysis of the income statement,the 100% amount is

Return ratios are measures of the relationship between the

Use the following information that was obtained from the 2018 and 2017 financial statements of Pacific Company,River Corporation,and Ocean Company to answer the questions that follow. Required (in millions) Accounts receivable December 31,2018 \ 33,000 \ 22,000 \ 41,500 December 31,2017 30,000 12,800 42,600 Inventory December 31,2018 22,600 12,600 54,200 December 31,2017 23,900 32,800 44,000 Net sales (Credit) 2018 620,000 320,000 510,000 2017 610,000 310,000 760,000 Cost of goods sold 2018 211,000 406,000 311,000 2017 156,000 200,000 310,000 Compare the three companies and answer the following: ​ $\text { A) Compute the accounts receivable turnover ratio for each company for } 2018 \text {. }$ B) Which company appears to have the best liquidity position based solely on the accounts receivable tumover? Explain.

Starch Company experiences a 20% increase in sales over the previous year.However,gross profit actually decreased by 10% from the previous year.What are some of the possible causes for an increase in sales but a decline in gross profit?

Since inflation is an important consideration in analyzing financial statements,the FASB requires the submission of all financial statements in an inflation-adjusted format to the SEC.

If Mussel Company has working capital of $540,000 and a current ratio of 3 to 1,the amount of current assets is

The base,or benchmark,on which all items on the income statement are compared is net sales.

Which of the following ratios is the best measure in analyzing a company's ability to pay interest on long-term debt and to repay the long-term debt over several years?

Solvency is concerned with the ability of a company to pay next year's debts as they come due.

The cash-to-cash operating cycle is the number of days' sales in

Culinary Delights Company Use the financial statements for Culinary Delights Company to answer the questions that follow. Consolidated Statement of Earnings and Retained Earning -Refer to the financial statements for Culinary Delights Company. Required (A)Calculate Culinary Delights' return on sales ratio for 2018 and 2017.Assume that the income tax rate is 30%.What information is provided by this ratio? (B)Calculate the return on common stockholders' equity ratio for 2018 and 2017.Stockholders' equity at December 31,2016,was $897,431 (in thousands).Why is the denominator an average instead of a single amount?

Presented below are selected data from the financial statements of Medtech Company for several years. ​ ​ 2019 2018 2017 Total assets \ 487,500 \ 615,750 \ 600,000 Net credit sales 600,000 487,500 540,000 Accounts receivable 63,750 60,000 55,500 Net income 11,250 65,000 9,000 ​ A) Calculate Medtech's accounts receivable turnover ratio for 2019 and 2018 . B) What could have caused the change? Explain.

The following information is summarized from the balance sheets of Gear Mart Corporation and Function Junction,Inc.at December 31,2017: ​ ​ Gear Mart Function Junction Current assets: Cash and cash equivalents \ 340,800 \ 100,200 Short-term investments 12,000 7,600 Accounts receivable, net 377,000 42,000 Notes receivable, net 36,300 18,000 Other current assets 207,400 40,000 Total current assets \ 973,500 \ 207,800 Current liabilities \ 860,900 \ 150,000 Other liabilities 5,000,400 300,500 Stockhol ders' equity 2,400,300 800,700 1) Using the information provided above, compute the following for each company at December 31, 2018: A. Working capital B. Current ratio C. Acid-test ratio 2) Comment briefly on the liquidity of each of these two companies. Which company appears to be the most liquid?

Which of the following is true regarding the relationship of the current ratio to the quick ratio?

Common-size financial statements exclude the dollar amount as a relevant variable in the analysis,which makes comparison of one period with the next more meaningful.

A banker is analyzing a company that operates in the petroleum industry.Which of the following might be a major consideration in determining whether the company should receive a loan?

Because net income is on an after-tax basis,interest in the return on assets ratio must be placed on a before-tax basis.

Which of the following statements is true regarding vertical analysis?