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Exam 13: Analysis of Financial Statements

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Question 51

True/False

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

A) True
B) False

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Question 52

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Annual cash dividends per share divided by market price per share is the:

A) Price-earnings ratio.
B) Price-dividends ratio.
C) Profit margin.
D) Dividend yield ratio.
E) Earnings per share.

F) A) and B)
G) A) and C)

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Question 53

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$\begin{array} { | l | r | r | } \hline &{ \text { Year 2 } } & { \text { Year 1 } } \\\hline \text { Accounts receivable, net } & 86,500 & 82,750 \\\hline \text { Net sales } & 723,000 & 693,000 \\\hline\end{array}$ -Refer to the following selected financial information from Marston Company.Compute the company's days' sales uncollected for Year 2.(Use 365 days a year.)

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

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

Express the following income statement information in common-size percentages and in trend percentages using 2016 as the base year.

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

$\begin{array} { | l | r | r | } \hline & { \text { Year 2 } } & { \text { Year 1 } } \\\hline \text { Net sales } & \$ 478,500 & \$ 426,250 \\\hline \text { Cost of goods sold } & 276,300 & 250,120 \\\hline \text { Interest expense } & 9,700 & 10,700 \\\hline \text { Net income before tax } & 67,250 & 52,680 \\\hline \text { Net income after tax } & 46,050 & 39,900 \\\hline \text { Total assets } & 317,100 & 288,000 \\\hline \text { Total liabilities } & 181,400 & 167,300 \\\hline \text { Total equity } & 135,700 & 120,700 \\\hline\end{array}$ -Refer to the following selected financial information from Shakley's Incorporated.Compute the company's debt-to-equity ratio for Year 2.

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

$\begin{array} { | l | r | r | } \hline &{ \text { Year 2 } } & \text { Year 1 } \\\hline \text { Net sales } & \$ 478,500 & \$ 426,250 \\\hline \text { Cost of goods sold } & 276,300 & 250,120 \\\hline \text { Interest expense } & 9,700 & 10,700 \\\hline \text { Net income before tax } & 67,250 & 52,680 \\\hline \text { Net income after tax } & 46,050 & 39,900 \\\hline \text { Total assets } & 317,100 & 288,000 \\\hline \text { Total liabilities } & 181,400 & 167,300 \\\hline \text { Total equity } & 135,700 & 120,700 \\\hline\end{array}$ -Refer to the following selected financial information from Shakley's Incorporated.Compute the company's profit margin for Year 2.

The building blocks of financial statement analysis include (1)liquidity, (2)salability, (3)solvency,and (4)profitability.

The debt ratio,the equity ratio,pledged assets to secured liabilities,and times interest earned are all ________ ratios.

The percent change of a comparative financial statement item is computed by subtracting the analysis period amount from the base period amount,dividing the result by the base period amount and multiplying that result by 100.

Intra-company analysis is based on comparisons with competitors.

In horizontal analysis the percent change is computed by:

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

Efficiency refers to how productive a company is in using its assets,and is usually measured relative to how much revenue is generated from a certain level of assets.

Horizontal analysis is used to reveal changes in the relative importance of each financial statement item.

________ is a method of analysis used to evaluate individual financial statement items or groups of items in terms of a specific base amount.

Calculate the percent increases for each of the following selected balance sheet items. $\begin{array}{|l|r|r|}\hline&2018&2017\\\hline \text { Cash } & \$ 569 & \$448 \\\hline \text { Accounts receivable } & 2,234 & 2,337 \\\hline \text { Merchandise inventory } & 1,062 & 1,071 \\\hline \text { Plant assets } & 2,432 & 2,138 \\\hline \text { Bonds payable } & 1,164 & 1,668 \\\hline \text { Equity } & 2,777 & 2,894 \\\hline\end{array}$