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Exam 17: Analysis of Financial Statements

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Question 51

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The common-size percent is computed by:

A) Dividing the analysis amount by the base amount.
B) Subtracting the base amount from the analysis amount and multiplying the result by 100.
C) Dividing the base amount by the analysis amount.
D) Dividing the base amount by the analysis amount and multiplying the result by 1,000.
E) Dividing the analysis amount by the base amount and multiplying the result by 100.

F) All of the above
G) C) and D)

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Question 52

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Refer to the following selected financial information from McCormik, LLC. Compute the company's acid-test ratio for Year 2. $\begin{array}{|l|r|r|}\hline & \text { Year 2 } & {\text { Year 1 }} \\\hline \text { Cash } & \$ 37,500 & 36,850 \\\hline \text { Short-term investments } & 90,000 & 90,000 \\\hline \text { Accounts receivable, net } & 85,500 & 86,250 \\\hline \text { Merchandise inventory } & 121,000 & 117,000 \\\hline \text { Prepaid expenses } & 12,100 & 13,500 \\\hline \text { Plant assets } & 388,000 & 392,000 \\\hline \text { Accounts payable } & 113,400 & 111.750 \\\hline \text { Net sales } & 711,000 & 706,000 \\\hline \text { Cost of goods sold } & 390,000 & 385,500 \\\hline\end{array}$

A) 1.98.
B) 3.05.
C) 1.88.
D) 2.26.
E) 2.95.

F) B) and E)
G) All of the above

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Question 53

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Financial analysis only refers to the communication of relevant financial information to decision makers.

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

A brief focus on important analysis results and conclusions is usually included in which of the following sections of a financial statement analysis report:

Match each of the following terms with the appropriate formulas. - $\frac{\text { Accounts receivable }}{\text { Net sales }}$ *365

One purpose of financial statement analysis for internal users is to provide strategic information to improve company efficiency and effectiveness in providing products and services.

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

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

The return on total assets ratio is a profitability measure.

Financial statement analysis involves all of the following except:

Horizontal analysis is the comparison of a company's financial condition and performance across time.

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

If a company is comparing its financial condition or performance to a base amount, it is using vertical analysis.

Refer to the following selected financial information from Graceworks, Corp. Compute the company's days' sales in inventory for Year 2. (Use 365 days a year.) $\begin{array}{|l|r|r|}\hline & \text { Year 2 } & {\text { Year 1 }} \\\hline \text { Merchandise inventory } & 271,000 & 253,500 \\\hline \text { Cost of goods sold } & 486,400 & 433,100\\\hline\end{array}$

Refer to the following selected financial information from McCormik, LLC. Compute the company's inventory turnover for Year 2. $\begin{array}{|l|r|r|}\hline & \text { Year 2 } & {\text { Year 1 }} \\\hline \text { Cash } & \$ 37,500 & 36,850 \\\hline \text { Short-term investments } & 90,000 & 90,000 \\\hline \text { Accounts receivable, net } & 85,500 & 86,250 \\\hline \text { Merchandise inventory } & 121,000 & 117,000 \\\hline \text { Prepaid expenses } & 12,100 & 13,500 \\\hline \text { Plant assets } & 388,000 & 392,000 \\\hline \text { Accounts payable } & 113,400 & 111.750 \\\hline \text { Net sales } & 711,000 & 706,000 \\\hline \text { Cost of goods sold } & 390,000 & 385,500 \\\hline\end{array}$

Internal users of financial information:

Clairmont Industries reported Net income of $283,000 and average Total assets of $637,000. The Return on total assets is:

The evaluation of company performance and financial condition includes evaluation of (1)past and current performance, (2)current financial position, and (3)future performance and risk.

All of the following are true of a financial statement analysis report, except: