Exam 17: Analysis of Financial Statements

Horizontal analysis is the comparison of a company's financial condition and performance to a base amount.

Refer to the following selected financial information from Fennie's, LLC. Compute the company's accounts receivable turnover for Year 2.

Earnings per share are calculated only on income from continuing operations.

A trend percent, or index number, is calculated by dividing the analysis period amount by the base period amount and multiplying the result by 100.

Calculate the percent increases for each of the following selected balance sheet items.

Trend analysis of financial statement items can include comparisons of relations between items on different financial statements.

Financial reporting includes not only general purpose financial statements, but also information from SEC filings, press releases, shareholders' meetings, forecasts, management letters, auditor's reports, and Webcasts.

Express the following income statement information in common-size percents and in trend percents using 2011 as the base year.

General standards of comparisons include the 2:1 level for the current ratio and 1:1 level for the acid-test ratio.

Comparative financial statements are reports that show financial amounts placed side by side in columns on a single statement for analysis purposes.

Comparative horizontal analysis is used to reveal patterns in data covering successive periods.

Use the following selected information from Farris, LLC to determine the Year 2 and Year 1 trend percents for cost of goods sold using Year 1 as the base.

_______________ are reports where financial amounts are placed side-by-side in columns on a single statement for analytical purposes.

A high level of expected risk suggests a low price-earnings ratio.

Information from a manufacturing company's current year income statement is as follows. Calculate the company's (a) profit margin ratio, (b) gross margin ratio, and (c) times interest earned.

A company's calendar-year financial data are shown below. The company had total assets of $339,000 and total equity of $144,400 for the prior year. No additional shares of common stock were issued during the year. The December 31 market price per share is $49.50. Cash dividends of $19,500 were paid during the year. Calculate the following ratios for the company: (a) debt ratio (b) equity ratio (c) debt-to-equity ratio (d) times interest earned (e) total asset turnover

Trend analysis is also called:

Use the following information from the current year financial statements of a company to calculate the ratios below: (a) Current ratio. (b) Accounts receivable turnover. (Assume the prior year's accounts receivable balance was $100,000.) (c) Days' sales uncollected. (d) Inventory turnover. (Assume the prior year's inventory was $50,200.) (e) Times interest earned ratio. (f) Return on common stockholders' equity. (Assume the prior year's common stock balance was $480,000 and the retained earnings balance was $128,000.) (g) Earnings per share (assuming the corporation has a simple capital structure, with only common stock outstanding). (h) Price earnings ratio. (Assume the company's stock is selling for $26 per share.) (i) Divided yield ratio. (Assume that the company paid $1.25 per share in cash dividends.)

When a company's activities include income-related events not part of normal, continuing operations, the complete income statement could potentially have the following sections:

The use of debt is sometimes described as financial leverage because debt can have the effect of increasing the return on equity.