Exam 13: Financial Statement Analysis

In a vertical analysis,the base,or benchmark,on which all other items in the income statement are compared is __________.

Treetop Company paid off a $100,000 two-year note payable.The effect of this transaction is that the

Given below is information for Short Corporation and Long Computers,Inc.at the end of 2017. ? (inmillions) Short Long Cash and cash equival ents \ 1,100 \ 300 Short-term investments/marketable securities 100 900 Accounts, notes, and other receivables, net 11,700 12,400 Inventories 1,200 1,000 Prepaid expenses 1,400 600 Total current assets \ 15,500 \ 15,200 Current liabilities \ 5,000 \ 4,000 Other liabilities \ 2,300 \ 12,000 Stockhol ders' equity \ 5,300 \ 7,300 1) Using the information provided above, compute the following for each company at December 31, 2018 : A. Current ratio B. Acid-test ratio 2) Comment briefly on the liquidity of each of these two companies. Which appears to be more liquid? 3) What other ratios would help you to more fully assess the liquidity of these companies?

The income number used in the rate of return on assets is income after interest expense is added back.

The current ratio

If a company must pay more for the amounts provided by creditors and preferred stockholders than it can earn overall,as indicated by the return on assets,there will be favorable leverage.

Various organizations publish summaries of selected ratios organized by industry for a sample of U.S.companies.

What is the minimum number of years for which publicly traded companies must include the following statements in their annual report filed with the SEC? Balance Sheet Income Statements and Statements of Cash Flows a.3 years 3 years b.2 years 2 years c.2 years 3 years d.3 years 2 years

Aleve Company purchased inventory on credit.The effect of this transaction is that the

Kingston Company's accounts receivable turned over nine times during the year.This translates into strict adherence of the company's net/30 credit terms by Kingston's customers.

Squid Lips,Inc.wants to measure the relationship between profitability and the investment made by stockholders.Squid Lips should use the

What importance is placed on a company's stock price in the ratio analysis of a company? Explain.

The profit margin ratio reflects the amount of income for each dollar of sales.

An increase in a company's revenue and expense accounts will automatically cause an increase in net income for the period.

Which of the following considerations is most important for a stockholder when evaluating whether to purchase stock in a company?

Why is liquidity important for businesses?

Some ratios are more useful for management,whereas others are better suited to the needs of outsiders,such as stockholders and bankers.What is an example of a ratio that is primarily suited to management use and why? What ratio is more suited to use by outsiders and why?

A company that uses leverage is attempting to earn an overall return that is higher than the cost of funds received from

The following information is available from the balance sheets at the end of 2018 and 2017 for Kitchen Equipment Company. ? Accounts payable \ 120,000 \ 100,000 Accrued liabilities 35,000 30,000 Taxes payable 40,000 10,000 Short-term notes payable 0 80,000 Bonds payable due within next year 300,000 100,000 Total current liabilities Bonds payable Common stock, \ 5 par \ 800,000 \ 800,000 Retained earnings Total stockholders' equity \ 1,000,000 \ 900,000 Total liabilities and stockhol ders' equity Net income for 2018 and 2017 was $120,000 and $460,000,respectively.No stock was issued during either year.Answer the following: A) How many shares of stock are outstanding at the end of 2018 ? B) If a company has preferred stock, why are preferred dividends subtracted when computing earnings per share? C) What is the amount of earnings per share for the year ended December 31,2018 ? D) Explain what information is provided with earnings per share.

Ware Company has a return on assets of 15% and a return on common stockholders' equity of 10%.John Ware,the president of the company,has asked you to explain the reason for this difference.What causes the difference? How is the concept of financial leverage involved?