Exam 13: Financial Statement Analysis

The three types of analysis that involve ratios are __________,__________,and __________.

Scrubber, Inc. presented the following information in a note to its financial statements for the year ending December 31, 2017: The company has a loan agreement with Mountain State Bank that states: 1. The current ratio should remain at least 2.0 to 1 at all times. 2. The debt-to-equity ratio should not exceed 0.7 to 1 at any time. 3. The company must maintain $75,000 cash at all times. The ratios at year-end are current ratio, 2.3 to 1 and debt-to-equity ratio, 0.2 to 1. The amount of cash on the bank statement is $75,400, but the Cash account after the adjustments from the bank reconciliation has a balance of $74,900. Has Scrubber violated its loan agreement?

Would a banker be more interested in the liquidity or the solvency of a company? Explain.

Spring Market has an inventory turnover ratio of 15 times.Fall Market has a turnover of 14 times.Fall is more effective in managing inventory.

Show the effect of each of the transactions below on total liabilities and the debt-to-equity ratio by using one of the following symbols in each box to complete the table.If the numerator and denominator of a ratio both increase or both decrease by the same amount,the effect of the event on the ratio is "insufficient data."

What is meant by a company's "long-term financial health"? Which side of the balance sheet is more informative for this issue? Explain.

St.Petersburg Corporation Use the information obtained from the comparative financial statements included in the St.Petersburg Corporation's 2018 annual report that is presented below to answer the questions that follow.All amounts are in thousands of dollars. ​ Dec. 31, 2018 Dec. 31, 2017 Total assets \ 800,000 \ 975,000 Total common stockholders' equity 405,000 578,000 Total stockholders' equity 504,000 702,000 December 31 FOR THE FISCAL YEARS ENDED 2018 2017 Interest expense, net of tax 5,000 700 Interest expense 6,100 5,800 Income tax expense 22,600 32,600 Net income 110,000 27,000 Common dividends 12,600 7,200 Net sales 2,667,600 1,971,000 Preferred dividends 9,000 14,400 ​ -Refer to the financial information for St.Petersburg Corporation. Required (A)Identify the two components of the return on assets ratio for St.Petersburg.Explain the change in the return on assets ratio during 2018 as it relates to these components. (B)During 2018,how much is St.Petersburg's average cost of borrowed capital as compared to the cost of the money provided by the preferred stockholders? Which is the more profitable? Explain.

The amount of working capital is more meaningful to users than the current ratio because it provides information on the composition of the current accounts.

The denominator of a return ratio will be some measure of the company's income for the period.

The selection of a particular inventory valuation method has a significant effect on certain key ratios.

Which of the following is a total dollar measure of liquidity?

Sandy Shores,Inc.reported the following amounts in its financial statements: 2018 2017 Average merchandise inventory \ 200,000 \ 120,000 Cost of goods sold 4,000,000 3,000,000 From 2017 to 2018,the company's management of inventory is

Presented below are selected data from the financial statements of Provost Corp. 2018 2017 Net income \ 110,000 \ 123,000 Cash dividends paid on common stock \ 42,000 \ 38,000 Market price per share of common stock at the end of the year \ 16.00 \ 13.00 Shares of common stock outstanding 140,000 140,000 The dividend payout ratio for 2018 is

Comparing one company with another in the same industry should cause no problems since companies in the same industry are required to use the same GAAP.

Three measures of liquidity are working capital,the acid-test ratio,and the debt-to-equity ratio.

Trend analysis is another name for __________ analysis.

Shoreville Corp.'s December 31,2017,balance sheet reported current assets of $260,000 and current liabilities of $200,000.The current ratio increased by 20% one year later,on December 31,2018.Current liabilities on this date were $280,000.Determine current assets on December 31,2018.

Dormont,Inc. ,a supplier,is thinking of extending credit to Fab Company but decides not to because Fab's current ratio is only 0.60.Do you agree with the supplier's decision? What other factors need to be considered in drawing any conclusions about a company's liquidity?

Which of the following ratios is least useful in evaluating a company's ability to pay its current debts as they become due?

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)Culinary Delights' cash flow from operations for 2018 is $323,847 (in thousands).Evaluate Culinary Delights' short-term cash flow position during 2018.Is the company in danger of problems? Explain. (B)Evaluate Culinary Delights' inventory management during 2018.