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Exam 13: Analysis of Financial Statements

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Question 21

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The following information is available for the Starr Corporation: $\begin{array} { | l | r | } \hline \text { Sales } & \$ 750,000 \\\hline \text { Cost of goods sold } & 450,000 \\\hline \text { Gross profit } & 300,000 \\\hline \text { Operating income } & 85,000 \\\hline \text { Net income } & 42,000 \\\hline \text { Inventory, beginning-year } & 71,200 \\\hline \text { Inventory, end-of-year } & 48,800 \\\hline\end{array}$ Calculate the company's inventory turnover and its days' sales in inventory.

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Inventory turnover = $450,000/...

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Question 22

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When a negative amount is in the base period and a positive amount is in the analysis period (or vice versa), a meaningful percent change cannot be calculated.

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B) False

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Question 23

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

One of several ratios that reflects solvency includes the:

The building blocks of financial statement analysis do not include:

The return on total assets ratio is a profitability measure.

A company paid cash dividends on its preferred stock of $40,000 in the current year when its net income was $120,000 and its average common stockholders' equity was $640,000. What is the company's return on common stockholders' equity?

Low expectations of future performance result in a low price-earnings (PE) ratio.

When no value is in the base period, no percent change is computable.

Jones Corp. reported current assets of $193,000 and current liabilities of $137,000 on its most recent balance sheet. The working capital is:

The common-size percent is computed by:

________ applies analytical tools to general-purpose financial statements and related data for making business decisions.

To be useful, a ratio must refer to economically important relationships, such as a sale price compared to its cost.

In horizontal analysis the percent change is computed by:

Ash Company reported sales of $400,000 for Year 1, $450,000 for Year 2, and $500,000 for Year 3. Using Year 1 as the base year, what is the revenue trend percent for Years 2 and 3?

Internal users of financial information:

Working capital is computed as current liabilities minus current assets.

Trend analysis is a form of horizontal analysis that can reveal patterns in data across successive periods.

Three of the most common tools of financial analysis include horizontal analysis, vertical analysis, and ratio analysis.

A company with a low inventory turnover requires a smaller investment in inventory than one producing the same sales with a higher turnover.