Exam 4: Financial Analysis-Sizing up Firm Performance

The debt ratio is a measure of a firm's

If a company's average collection period is higher than the industry average,then the company might be

If Challenge Corporation has sales of $2 million per year (all credit)and an average collection period of 35 days,what is its average amount of accounts receivable?

Use the following information to answer the following question(s). Key Ratios for ABC,Inc.and Its Industry ABC,Inc.2013 Ratios Industry Average Ratios in 2013 Current ratio 1.2 1.4 Acid test ratio 0.89 0.94 Average collection period 30 days 25 days Inventory turnover 18.1 20.3 Fixed assets turnover 4.1 4.8 Total asset turnover 2.78 2.8 Debt ratio 50% 60% Times-interest-earned 5.5% 4.5% Net profit margin 1.15% 1.5% Return on equity 5.21% 7.32% ABC,Inc.Income Statement (in thousands) December 31,2014 Sales (all credit)$200,000 Cost of goods sold 140,000 Gross profit on sales 60,000 Operating expenses 56,000 Operating income 4,000 Interest expense 1,000 Earnings before tax 3,000 Income tax 1,050 Net income available to common stockholders $1,950 ABC,Inc.Balance Sheet (in thousands) December 31,2014 Assets Cash $2,000 Accounts receivable 17,800 Inventories 8,700 Total current assets 28,500 Gross fixed assets 70,000 Accumulated depreciation 26,500 Net fixed assets 43,500 Total assets $72,000 Liabilities and Equity Accounts payable $18,000 Accruals 13,350 Total current liabilities 31,350 Long-term debt 8,250 Total liabilities 39,600 Common stock (par value and paid in capital)2,000 Retained earnings 30,400 Total stockholders' equity 32,400 Total liabilities and equity $72,000 -In 2014,ABC's fixed asset turnover is

The analysis of a firm's financial statements can be an important factor in the firm's ability to borrow money.

Common size balance sheets represent all figures on the balance sheet

Kannan Carpets,Inc.has asked you to calculate the company's quick ratio for 2001.All you have is a partial balance sheet and some assumptions.Using the information provided,calculate Kannan's quick ratio for 2001. Gross profit margin = 50% Inventory turnover (COGS/Inv)= 5 2001 sales = $3,000 Assets Liabilities & Equity Cash ? Accounts payable $50 AR $40 Accruals ? Inventory ? Long-term debt $400 Net fixed assets $500 Equity 250 Total assets $900 Total liab.& equity ?

Spinnit,Limited has a debt ratio of .57,current liabilities of $14,000,and total assets of $70,000.What is the level of Spinnit,Limited's total liabilities?

The DuPont method decomposes return on equity into

Ratios that examine profit relative to investment are useful in evaluating the overall effectiveness of the firm's management.

Which of the following statements is true?

Baker & Co.has applied for a loan from the Trust Us Bank to invest in several potential opportunities.To evaluate the firm as a potential debtor,the bank would like to compare Baker & Co.to the industry.The following are the financial statements given to Trust Us Bank: Balance Sheet 12/31/13 12/31/14 Cash $305 270 Accounts receivable 275 290 Inventory 600 580 Current assets 1,180 1,140 Plant and equipment 1,700 1,940 Less: acc depr (500)(600) Net plant and equipment 1,200 1,340 Total assets $2,380 $2,480 Liabilities and Owners' Equity Accounts payable $150 $200 Notes payable 125 0 Current liabilities 275 200 Bonds 500 500 Owners' equity Common stock 165 305 Paid-in-capital 775 775 Retained earnings 665 700 Total owners' equity 1,605 1,780 Total liabilities and owners' equity $2,380 $2,480 Income Statement Sales (100% credit)$1,100 $1,330 Cost of goods sold 600 760 Gross profit 500 570 Operating expenses 20 30 Depreciation 160 200 Net operating income 320 340 Interest expense 64 57 Net income before taxes 256 283 Taxes 87 96 Net income $169 $187 a.What are the firm's financial strengths and weaknesses? b.Should the bank make the loan? Why or why not?

Kingsbury Associates has current assets as follows: Cash $3,000 Accounts receivable $4,500 Inventories $8,000 If Kingsbury has a current ratio of 3.2,what is its quick ratio?

Colton Corp.has current assets of $4.5 million.The current ratio is 1.25 and the quick ratio is 0.75.What is the amount of Colton's current liabilities (in millions)?

Financial ratios can highlight a firm's financial performance with regard to liquidity,solvency,and profitability.

Skrit Corporation has a net profit margin of 15% and a total asset turnover of 1.7.What is Skrit's return on total assets?

Which of the following parties would perform an internal financial analysis?

Which of the following parties would be interested in an analysis of the firm's financial statements?

Which of the following is the best indicator of management's effectiveness at managing the firm's balance sheet?

Use the following information to answer the following question(s). Key Ratios for ABC,Inc.and Its Industry ABC,Inc.2013 Ratios Industry Average Ratios in 2013 Current ratio 1.2 1.4 Acid test ratio 0.89 0.94 Average collection period 30 days 25 days Inventory turnover 18.1 20.3 Fixed assets turnover 4.1 4.8 Total asset turnover 2.78 2.8 Debt ratio 50% 60% Times-interest-earned 5.5% 4.5% Net profit margin 1.15% 1.5% Return on equity 5.21% 7.32% ABC,Inc.Income Statement (in thousands) December 31,2014 Sales (all credit)$200,000 Cost of goods sold 140,000 Gross profit on sales 60,000 Operating expenses 56,000 Operating income 4,000 Interest expense 1,000 Earnings before tax 3,000 Income tax 1,050 Net income available to common stockholders $1,950 ABC,Inc.Balance Sheet (in thousands) December 31,2014 Assets Cash $2,000 Accounts receivable 17,800 Inventories 8,700 Total current assets 28,500 Gross fixed assets 70,000 Accumulated depreciation 26,500 Net fixed assets 43,500 Total assets $72,000 Liabilities and Equity Accounts payable $18,000 Accruals 13,350 Total current liabilities 31,350 Long-term debt 8,250 Total liabilities 39,600 Common stock (par value and paid in capital)2,000 Retained earnings 30,400 Total stockholders' equity 32,400 Total liabilities and equity $72,000 -In 2014,the improvement in ABC's return on equity occurred because