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Exam 17: Analysis of Financial Statements

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Question 51

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Use the following selected information from Wheeler, LLC to determine the 2017 and 2016 trend percentages for cost of goods sold using 2016 as the base. $\begin{array} { | l | r | r | } \hline & { \mathbf { 2 0 1 7 } } & { \mathbf { 2 0 1 6 } } \\\hline \text { Net sales } & \$ 276,200 & \$ 231,400 \\\hline \text { Cost of goods sold } & 151,900 & 129,590 \\\hline \text { Operating expenses } & 55,240 & 53,240 \\\hline \text { Net earnings } & 27,820 & 19,820 \\\hline\end{array}$

A) 117.2% for 2017 and 100.0% for 2016.
B) 119.4% for 2017 and 100.0% for 2016.
C) 55.0% for 2017 and 56.0% for 2016.
D) 36.4% for 2017 and 41.1% for 2016.
E) 65.1% for 2017 and 64.6% for 2016.

F) D) and E)
G) A) and E)

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Question 52

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Evaluation of company performance does not include analysis of (1) past and current performance, (2) current financial position, and (3) future performance and risk.

A) True
B) False

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Question 53

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Intra-company analysis is based on comparisons with competitors.

Zhang Company reported Cost of goods sold of $835,000 and average Inventory of $41,750. The Inventory turnover ratio is:

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

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

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

Jones Corp. reported current assets of $193,000 and current liabilities of $137,000 on its most recent balance sheet. - The current assets consisted of $62,000 Cash; $43,000 Accounts Receivable; and $88,000 of Inventory. The acid-test (quick) ratio is:

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

The base amount for a common-size balance sheet is usually total assets.

The comparison of a company's financial condition and performance to a base amount is known as:

Carducci Corporation reported Net sales of $3.6 million and average Total assets of $1.1 million. The Total asset turnover is:

Common-size statements:

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

Refer to the following selected financial information from McCormik, LLC. Compute the company's days' sales uncollected for Year 2. (Use 365 days a year.) $\begin{array} { | l | r | r | } \hline & { \text { Year 2 } } & { \text { Year 1 } } \\\hline \text { Cash } & \$ 37,500 &3 6 , 8 5 0 \\\hline \text { Short-term investments } & 90,000 & 90,000 \\\hline \text { Accounts receivable, net } & 85,500 & 86,250 \\\hline \text { Merchandise inventory } & 121,000 & 117,000 \\\hline \text { Prepaid expenses } & 12,100 & 13,500 \\\hline \text { Plant assets } & 388,000 & 392,000 \\\hline \text { Accounts payable } & 113,400 & 111.750 \\\hline \text { Net sales } & 711,000 & 706,000 \\\hline \text { Cost of goods sold } & 390,000 & 385,500 \\\hline\end{array}$

Working capital is computed as current liabilities minus current assets.

Financial reporting includes not only general purpose financial statements, but also information from SEC filings, press releases, shareholders' meetings, forecasts, management letters, auditor's reports, and Webcasts.

Profitability is the ability to generate future revenues and meet long-term obligations.

A company reports basic earnings per share of $3.50, cash dividends per share of $1.25, and a market price per share of $64.75. The company's dividend yield equals:

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