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Exam 13: Analysis of Financial Statements

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Question 131

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Match the financial analysis building block most appropriately associated with each ratio. Each building block may be used more than once. -Basic Earnings per Share

A) Market Prospects
B) Liquidity and Efficiency
C) Solvency
D) Profitability

E) None of the above
F) C) and D)

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Question 132

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Describe the purpose of vertical financial statement analysis and how it is applied.

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Vertical analysis is used to evaluate in...

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Question 133

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Profitability is the ability to provide financial rewards sufficient to attract and retain financing.

Match the financial analysis building block most appropriately associated with each ratio. Each building block may be used more than once. -Debt Ratio

Express the following balance sheets for Safety Company in common-size percentages. $\begin{array}{c} \text {Safety Company}\\ \text {Balance Sheets}\\ \text {December 31,2017 and 2016}\\\begin{array}{|l|r|r|}\hline&2017&2016\\\hline \text { Assets } & & \\\hline \text { Cash } & \$ 43,000 & \$ 22,000 \\\hline \text { Accounts receivable } & 38,000 & 42,000 \\\hline \text { Merchandise inventory } & 61,000 & 52,000 \\\hline \text { Prepaid insurance } & 6,000 & 9,000 \\\hline \text { Long-term investments } & 49,000 & 20,000 \\\hline \text { Plant assets (net) } & 218,000 & 218,000 \\\hline \text { Total assets } & \$ 415,000 & \$ 363,000 \\\hline\\\hline \text { Liabilities and Equity } & & \\\hline \text { Current liabilities } & \$ 62,000 & \$ \quad 75,000 \\\hline \text { Long-term liabilities } & 45,000 & 36,000 \\\hline \text { Common stock } & 150,000 & 150,000 \\\hline \text { Retained earnings } & 158,000 & 102,000 \\\hline \text { Total liabilities and equity } & \$ 415,000 & \$ 363,000 \\\hline \end{array}\end{array}$

Gains and losses that are neither unusual nor infrequent are reported as:

Zhang Company reported Cost of goods sold of $835,000,beginning Inventory of $37,200 and ending Inventory of $46,300.The average Inventory amount is:

Common-size statements:

A company had a market price of $27.50 per share,earnings per share of $1.25,and dividends per share of $0.40.Its price-earnings ratio equals:

The return on total assets can be calculated as profit margin times total asset turnover.

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

Standards for comparisons in financial statement analysis do not include:

The current year-end balance sheet data for a company are shown below.Calculate the company's: (a)working capital (b)current ratio (c)acid-test ratio. Assets: $\begin{array} { l l } \text { Cash } & \$ 38,000 \\\text { Marketable securities } & 45,000 \\\text { Accounts receivable (net) } & 127,500 \\\text { Merchandise inventory } & 149,500 \\\text { Long-term investments } & 135,000 \\\text { Plant assets (net) } & \$ 17,500 \\\text { Total assets } & \$ 1,012,500\end{array}$ Liabilities and equity: $\begin{array} { l c } \text { Accounts payable } & \$ 148,700 \\\text { Accrued liabilities } & 90,000 \\\text { Notes payable (secured by plant assets) } & 254,800 \\\text { Common stock (\$1 2 par) } & 180,000 \\\text { Contributed capital in excess of par } & 135,000 \\\text { Retained earnings } & \underline { 204,000 } \\\text { Total liabilities and equity } & \$ 1,012,500\end{array}$

The measurement of key relationships between financial statement items is known as ________.

Use the following selected information from Wheeler,LLC to determine the 2017 and 2016 common size percentages for cost of goods sold using Net sales as the base. $\begin{array}{|l|r|r|}\hline&2017&2016\\\hline \text { Net sales } & \$ 276,200 & \$ 231,400 \\\hline \text { Cost of goods sold } & 151,900 & 129,590 \\\hline \text { Operating expenses } & 55,240 & 53,240 \\\hline \text { Net earnings } & 27,820 & 19,820\\\hline\end{array}$

Profitability is the ability to generate positive market expectations.

A company reported net income of $78,000 and had 15,000 common shares outstanding throughout the current year.At year-end,the price per share of the company's stock was $49.40.What is the company's year-end price-earnings ratio?

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

$\begin{array} { | l | r | } \hline \text { Cash } & \$ 42,250 \\\hline \text { Short-term investments } & 60,000 \\\hline \text { Accounts receivable, net } & 79,500 \\\hline \text { Merchandise inventory } & 115,00 \\\hline \text { Prepaid expenses } & 9,700 \\\hline \text { Accounts payable } & 111,400 \\\hline\end{array}$ -Refer to the following selected financial information from Dodge Company.Compute the company's acid-test ratio.

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)profit margin ratio (b)gross margin ratio (c)return on total assets (d)return on common stockholders' equity (e)book value per common share (f)basic earnings per share (g)price earnings ratio (h)dividend yield.