Exam 14: Financial Statement Analysis

Measures of solvency and credit risk Shown below are selected items appearing in a recent balance sheet of Grant Products.(Dollar amounts are in thousands.) (a)Compute the following: (1)Total quick assets $____________ (2)Total current assets $____________ (3)Total current liabilities $____________ (4)Quick ratio ______ to 1 (5)Current ratio ______ to 1 (b)Research indicates an industry average quick ratio is 1.3 to 1,and a current ratio of 2.3 to 1.Based upon this information,does Grant Products appear more or less solvent than the average company in its industry? Explain briefly.

Which of the following transactions would cause a change in the amount of a company's working capital?

One number expressed as a percentage of another is called:

The current ratio may be less than,equal to,or greater than the quick ratio.

From a creditor's point of view,the lower the debt ratio; the safer the creditor's position.

In a multiple-step income statement,interest expense usually is not classified as an operating expense because interest charges:

The debt ratio is computed by dividing total liabilities by current assets.

In order for investors and creditors to decide whether to invest in a company or loan a company funds they may:

Current assets are those assets that are expected to be converted into cash within a relatively short period of time.

Income statement classifications Simon Hardware and Garfunkel Foods are sole proprietorships with similar amounts of total assets.Also,both businesses earn similar amounts of revenue,incur similar amounts of operating expenses,and report similar net incomes.However,Simon has a higher cost of goods sold,while Garfunkel Foods has higher interest expense. Indicate which of these companies has the higher (a)gross profit rate,and (b)return on assets.In each case,explain the reasons for each answer.

Which of the following is a measure of profitability?

The debt ratio is used primarily as a measure of:

In a multiple-step income statement,income taxes are not classified as operating expenses because:

The quality of earnings tends to be higher for a company that uses accounting principles and methods that lead to a conservative measurement of earnings.

How would a company's working capital be affected if a substantial amount of accounts payable were paid in cash?

ROI: What and why? In general terms,what do all "ROI" ratios measure? Why are such computations useful?

If a company has a current ratio of 2 to 1,and purchases inventory on credit,what will this do to its current ratio?

When comparing the current ratio to the quick ratio:

Current assets are those assets that can be converted into cash within:

If a retail store has a current ratio of 2.5 and working capital of $117,000.What are the total of the current assets?