Exam 13: Financial Statement Analysis

An analysis procedure that uses percentages to compare each of the parts of an individual statement to a key dollar amount from the financial statements is:

Rialto Company collected $5,000 on account. What impact will this transaction have on the firm's current ratio?

As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant purchased merchandise on account for $4,000. Which of the following statements is correct?

Explain the difference between horizontal analysis and vertical analysis of a company's financial statements.

Which of the following statements is generally incorrect from an investor's perspective?

Indicate whether each of the following statements about financial statement analysis is true or false.The asset turnover ratio is calculated by dividing net income by average total assets.The asset turnover ratio is likely to be high in an industry in which operations require only a minimal investment in assets.Return on equity measures the wealth generated by the amount of assets invested in a business.A higher value for the return on investment ratio would generally indicate more effective company management.The use of financial leverage often causes a business's return on equity to be lower than its return on investment.

Which of the following statements is correct?

The following balance sheet information is provided for Greene Company for Year 2: What is the company's quick (acid-test) ratio (rounded to one decimal point)? Assets Cash \5 ,400 Accounts receivable 15,500 Inventory 18,000 Prepaid expenses 1,600 Phant and equipment, net of depreciation 20,200 Land 19,950 Total assets \8 0,650 Liabilities and Stockholders' Equity Accounts payable \ 4,500 Salaries payable 11,500 Bonds payable (Due in 2020) 19,000 Common stock, no par 30,000 Retained earnings 15,650 Total liabilities and stockholder' equity \8 0,650

Grove Corporation had sales of $3,000,000, cost of sales of $2,250,000, and average inventory of $500,000. What was Grove's inventory turnover ratio for the period?

You are considering an investment in IBM stock and wish to assess the firm's long-term debt-paying ability and its use of debt financing. All of the following ratios can be used to assess solvency except:

Lilly's Corporation has working capital of $620,000, and Harmon Corporation has working capital of $840,000. Which of the following statements is incorrect?

As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant issued common stock at par value for $10,000 cash. Which of the following statement is correct?

The return on investment measure is also referred to as:

Assume that you are considering purchasing some of a company's long-term bonds as an investment. Which of the company's financial statement ratios would you probably be most interested in?

Denver Corporation and Cheyenne Company are in different industries. Denver's current ratio is 1.89, while Cheyenne's current ratio is 1.65. Therefore, is it safe to conclude that Denver's liquidity position is better than that of Cheyenne?

Jenkins Company's current ratio is higher than the average for its industry, while its quick ratio is below the industry average. One possible interpretation for these results is that Jenkins carries less inventory than most companies in its industry.

Indicate whether each of the following statements about financial statement analysis is true or false.Solvency ratios measure a company's short-term debt paying ability and its financial structure.A company with a high debt to assets ratio probably would be considered to have a high level of financial risk.The debt to equity ratio and debt to assets ratio are two ways to measure the same relationship.From the point of view of stockholders, a decline in the debt to equity ratio is always good news.The lower the debt to equity ratio, the higher a company's financial leverage.

The Crestar Company reported net income of $112,000 on 20,000 average outstanding common shares. Preferred dividends total $12,000. On the most recent trading day, the preferred shares sold at $50 and the common shares sold at $95. What is this company's current price-earnings ratio?

The following balance sheet information is provided for Apex Company for Year 2: What is the company's working capital? Assets Cash \ Accounts receivable 5,400 Inventory 15,500 Prepaid expenses 18,000 Plant and equipment, net of depreciation 1,600 Land 20,200 Total assets \8 0,650 Liabilities and Stockholders' Equity Accounts payable \4 ,500 Salaries payable 11,500 Bonds payable (Due in 2020) 19,000 Common stock, no par 30,000 Retained earnings 15,650 Total liabilities and stockholder' equity \8 0,60

You are considering an investment in Facebook stock and wish to assess the company's position in the stock market. All of the following ratios can be used except: