Question 1

The standards for comparisons in financial statement analysis include (1) _____________, (2) ______________, (3) _______________, and (4) _____________.

Accepted Answer

Intracompany, compet

Question 2

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 ordinary shareholders'equity. (Assume the prior year's share capital on ordinary shares 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 ordinary shares outstanding).
(h) Price earnings ratio. (Assume the company's shares are selling for $26 per share.)
(i) Divided yield ratio. (Assume that the company paid $1.25 per share in cash dividends.)

Accepted Answer

(a)
Current ratio = $239,100/$96,000 = 2

Question 3

The following current year information is available from a manufacturing company:
Calculate the company's accounts receivable turnover and its days' sales uncollected.

Accepted Answer

The answer of The following current year information is available...

Question 4

The comparison of a company's financial condition and performance to a base amount is known as ___________________________.

Accepted Answer

The answer of The comparison of a company's financial condition...

Question 5

Three of the most common tools of financial analysis are (1) _______________________, (2) _________________________, and (3) ____________________________.

Accepted Answer

Horizontal analysis;

Question 6

Capital structure refers to a company's long-run financial viability and its ability to cover long-term obligations.

Accepted Answer

A) True 
 B)False

Question 7

The comparison of a company's financial condition and performance across time is known as:

Accepted Answer

A)  Horizontal analysis. 
B)  Vertical analysis. 
C)  Political analysis. 
D)  Financial reporting. 
E)  Investment analysis. 
A)  Horizontal analysis. 
B)  Vertical analysis. 
C)  Political analysis. 
D)  Financial reporting. 
E)  Investment analysis.

Question 8

Express the following income statement information in common-size percents (round to nearest whole percent). Comment on the results.

Accepted Answer

Comments: Although a smaller percent of

Question 9

Internal users of financial information:

Accepted Answer

A)  Are not directly involved in operating a company. 
B)  Are those individuals involved in managing and operating the company. 
C)  Include shareholders and lenders. 
D)  Include directors and customers. 
E)  Include suppliers, regulators, and the press. 
A)  Are not directly involved in operating a company. 
B)  Are those individuals involved in managing and operating the company. 
C)  Include shareholders and lenders. 
D)  Include directors and customers. 
E)  Include suppliers, regulators, and the press.

Question 10

Explain the purpose of financial statement analysis for both external and internal users.

Accepted Answer

The purpose of financial statement analy

Question 11

Identify the financial analysis building block most appropriately associated with each ratio listed below by placing the letter of the building block a through d beside each ratio 1 through 10. Each building block may be used more than once.

Accepted Answer

The answer of Identify the financial analysis building block most...

Question 12

Net income divided by net sales is the:

Accepted Answer

A)  Return on total assets. 
B)  Profit margin. 
C)  Current ratio. 
D)  Total asset turnover. 
E)  Days' sales in inventory. 
A)  Return on total assets. 
B)  Profit margin. 
C)  Current ratio. 
D)  Total asset turnover. 
E)  Days' sales in inventory.

Question 13

Working capital is computed as current liabilities minus current assets.

Accepted Answer

A) True 
 B)False

Question 14

The ability to generate future revenues and meet long-term obligations is referred to as:

Accepted Answer

A)  Liquidity and efficiency. 
B)  Solvency. 
C)  Profitability. 
D)  Market prospects. 
E)  Creditworthiness. 
A)  Liquidity and efficiency. 
B)  Solvency. 
C)  Profitability. 
D)  Market prospects. 
E)  Creditworthiness.

Question 15

Selected current year end financial information for a company is presented below. Calculate the following company ratios:
(a) Profit margin.
(b) Total asset turnover.
(c) Return on total assets.
(d) Return on ordinary shareholders' equity (assume the company has no preference shares).

Accepted Answer

(a) Profit margin = ($325,000/$4,700,000

Question 16

Use the following selected information from Farris, LLC to determine the Year 2 and Year 1 trend percents for net sales using Year 1 as the base.

Accepted Answer

A)  36.4% for Year 2 and 41.1% for Year 1. 
B)  55.0% for Year 2 and 56.0% for Year 1. 
C)  119.4% for Year 2 and 100.0% for Year 1. 
D)  117.2% for Year 2 and 100.0% for Year 1. 
E)  65.1% for Year 2 and 64.6% for Year 1. 
A)  36.4% for Year 2 and 41.1% for Year 1. 
B)  55.0% for Year 2 and 56.0% for Year 1. 
C)  119.4% for Year 2 and 100.0% for Year 1. 
D)  117.2% for Year 2 and 100.0% for Year 1. 
E)  65.1% for Year 2 and 64.6% for Year 1.

Question 17

Refer to the following selected financial information from Hansen's, LLC. Compute the company's return on total assets for Year 2.

Accepted Answer

A)  9.6%. 
B)  15.2%. 
C)  2.6%. 
D)  22.2%. 
E)  14.5%. 
A)  9.6%. 
B)  15.2%. 
C)  2.6%. 
D)  22.2%. 
E)  14.5%.

Question 18

The gross margin ratio, return on total assets, and basic earnings per share are all _____________ ratios.

Accepted Answer

The answer of The gross margin ratio, return on total...

Question 19

An advantage of common-size statements is that they reflect the dollar magnitude (size) of the different companies under analysis.

Accepted Answer

A) True 
 B)False

Question 20

The current ratio and acid-test ratio are used to reflect the ____________ of a business.

Accepted Answer

The answer of The current ratio and acid-test ratio are...

Exam 17: Analysis of Financial Statements

The standards for comparisons in financial statement analysis include (1) _____________, (2) ______________, (3) _______________, and (4) _____________.

The following current year information is available from a manufacturing company: Calculate the company's accounts receivable turnover and its days' sales uncollected.

The comparison of a company's financial condition and performance to a base amount is known as ___________________________.

Three of the most common tools of financial analysis are (1) _______________________, (2) _________________________, and (3) ____________________________.

Capital structure refers to a company's long-run financial viability and its ability to cover long-term obligations.

The comparison of a company's financial condition and performance across time is known as:

Express the following income statement information in common-size percents (round to nearest whole percent). Comment on the results.

Internal users of financial information:

Explain the purpose of financial statement analysis for both external and internal users.

Identify the financial analysis building block most appropriately associated with each ratio listed below by placing the letter of the building block a through d beside each ratio 1 through 10. Each building block may be used more than once.

Net income divided by net sales is the:

Working capital is computed as current liabilities minus current assets.

The ability to generate future revenues and meet long-term obligations is referred to as:

Selected current year end financial information for a company is presented below. Calculate the following company ratios: (a) Profit margin. (b) Total asset turnover. (c) Return on total assets. (d) Return on ordinary shareholders' equity (assume the company has no preference shares).

Use the following selected information from Farris, LLC to determine the Year 2 and Year 1 trend percents for net sales using Year 1 as the base.

Refer to the following selected financial information from Hansen's, LLC. Compute the company's return on total assets for Year 2.

The gross margin ratio, return on total assets, and basic earnings per share are all _____________ ratios.

An advantage of common-size statements is that they reflect the dollar magnitude (size) of the different companies under analysis.

The current ratio and acid-test ratio are used to reflect the ____________ of a business.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Long-Term Assets

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Statement of Cash Flows

Managerial Accounting Concepts and Principles

Job Order Cost Accounting

Process Cost Accounting

Cost Allocation and Performance Measurement

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Capital Budgeting and Managerial Decisions

Filters

The standards for comparisons in financial statement analysis include (1) _____, (2) , (3) _, and (4) _____.

Three of the most common tools of financial analysis are (1) ___________, (2) _, and (3) ________________.