Exam 13: Analysis of Financial Statements

Financial statement analysis applies analytical tools to financial statements and related data for making business decisions.

Horizontal analysis is used to reveal patterns in data covering two or more successive periods.

The background on a company, its industry, and its economic setting is usually included in which of the following sections of a financial statement analysis report?

Calculate the percent increase or decrease for each of the following financial statement items: Year 2 Year 1 Cash \ 37,500 \ 30,000 Accounts receivable 63,000 52,500 Inventory 67,500 90,000 Accounts payable 35,100 27,000 Sales 187,500 150,000 Equipment 165,000 125,000

Horizontal analysis is used to understand the relative importance of each financial statement item.

Ron Landscaping's income statement reports net income of $75,300, which includes deductions for interest expense of $11,500 and income taxes of $34,900. Its times interest earned is:

Guidelines (rules-of-thumb) are general standards of comparison developed from:

Dividing ending inventory by cost of goods sold and multiplying the result by 365 is the:

A good financial statement analysis report often includes the following sections: executive summary, analysis overview, evidential matter, assumptions, key factors, and inferences.

Refer to the following selected financial information from Troy Manufacturing. Compute the company's current ratio. Current Assets 306,450 Plant assets 388,000 Current Liabilities 107,800 Net sales 676,000 Net Income 75,000

Identify and explain the four building blocks of financial statement analysis.

Intra-company analysis compares a company's current performance to its own prior performance.

Selected current year company information follows: Net income \1 5,953 Net sales 712,855 Total liabilities, beginning-year 83,932 Total liabilities, end-of-year 103,201 Total stockholders' equity, beginning-year 198,935 Total stockholders' equity, end-of-year 121,851 The return on total assets is:

Yeats Corporation's sales in Year 1 were $396,000 and in Year 2 were $380,000. Using Year 1 as the base year, the percent change for Year 2 compared to the base year is:

Financial analysis does not include assessing future performance and risk because financial statements are based on past performance.

Total asset turnover reflects a company's ability to use its assets to generate sales and is an important indication of operating efficiency.

A corporation reports the following year-end balance sheet data. The company's acid-test ratio equals: Cash \ 40,000 Current liabilities \ 5,000 Accounts receivable 55,000 Long-term liabilities 35,000 Inventory 60,000 Common stock 100,000 Equipment 145,000 Retained earnings 90,000 Total assets \ 300,000 Total liabilities and equity \ 300,000

Quick assets (cash, short-term investments, and current receivables) divided by current liabilities is the:

Refer to the following selected financial information from Texas Electronics. Compute the company's days' sales in inventory for Year 2. (Use 365 days a year.) Year 2 Year 1 Cash \ 37,500 \ 36,850 Short-term investments 90,000 90,000 Accounts receivable, net 85,500 86,250 Merchandise inventory 121,000 117,000 Prepaid expenses 12,100 13,500 Plant assets 388,000 392,000 Accounts payable 113,400 111,750 Net sales 711,000 706,000 Cost of goods sold 390,000 385,500

Intra-company analysis is based on comparisons with competitors.