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Exam 17: Analysis of Financial Statements

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Question 81

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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. $\begin{array} { | l | r | r | } \hline & { \mathbf { 2 0 1 7 } } &{ \mathbf { 2 0 1 6 } } \\\hline \text { Net sales } & \$ 276,200 & \$ 231,400 \\\hline \text { Cost of goods sold } & 151,900 & 129,590 \\\hline \text { Operating expenses } & 55,240 & 53,240 \\\hline \text { Net earnings } & 27,820 & 19,820 \\\hline\end{array}$

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

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

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Question 82

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How long a company holds inventory before selling it can be measured by dividing cost of goods sold by the average inventory balance to determine the:

A) Current ratio.
B) Price earnings ratio.
C) Accounts receivable turnover.
D) Inventory turnover.
E) Days' sales uncollected.

F) C) and D)
G) A) and D)

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Question 83

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Identify the financial analysis building block most appropriately associated with each ratio listed below by placing the letter of the building block a through d beside each ratio 1 through 10. Each building block may be used more than once. A. Liquidity and Efficiency B. Solvency C. Profitability D. Market Prospects ________ (1) Price Earnings Ratio ________ (2) Dividend Yield (3) Accounts Receivable Turnover (4) Days' Sales in Inventory ________ (5) Return on Total Assets ________ (6) Equity Ratio ________ (7) Debt Ratio (8) Inventory Turnover (9) Basic Earnings per Share ________ (10) Times Interest Earned

The four building blocks of financial analysis are (1)________, (2) ________, (3) ________ and (4) ________.

Comparative calendar-year financial data for a company are shown below. Calculate the following ratios for the company for 2018: (a) accounts receivable turnover (b) day's sales uncollected (c) inventory turnover (d) days' sales in inventory $\begin{array} { l | l | l } & 2018 & 2017 \\\hline \text { Sales } & \$ 720,000 & \$ 607,500 \\\hline \text { Cost af goods sold } & 450,000 & 382,700 \\\hline \text { Operating expenses } & 168,500 & 134,900 \\\hline \text { Net income } & 51,200 & 51,700 \\\hline & & \\\hline & \text { December 31. } & \text { December 31. } \\\hline & 2018 & 2017 \\\hline \text { Accounts receivable (net) } & \$ 157,500 & \$ 162,500 \\\hline \text { Inventory } & 139,500 & 110,500 \\\hline \text { Total assets } & 1,012,500 & 944,800 \\\hline\end{array}$

Express the following income statement information in common-size percentages (round to nearest whole percent). Comment on the results. Haans Corp. Comparative Income Statements For Years Ended December 31, 2018 and 2017 $\begin{array}{ll|l|l} & & 2018 & 2017 \\\hline \text { Sales } & 103 & \$ 1,200,000 & \$ 1,000,000\end{array}$ $\begin{array} { | l | c | c | } \hline \text { Sales } & \$ 1,200,000 & \$ 1,000,000 \\\hline \text { Cost of goods sold } & 804,000 & 6 5 0 , 0 0 0\\\hline \text { Grost profit } & \$ 396,000 & \$ 350,000 \\\hline \text { Selling expentes } & 132,000 & 120,000 \\\hline \text { Adrinistrative expenses } & 180,000 & 150,000 \\\hline \text { Net income } & \$ 84,000 & \$ 80,000 \\\hline\end{array}$

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

Three of the most common tools of financial analysis are:

Yeats Corporation's sales in Year 1 were $396,000 and in Year 2 were $380,000. Using Year 1 as the base year, the percent change for Year 2 compared to the base year is:

The higher the accounts receivable turnover, the less quickly accounts receivable are collected.

Financial statements with data for two or more successive accounting periods placed in columns side by side, sometimes with changes shown in both dollar amounts and percentages, are referred to as:

A trend percent, or index number, is calculated by dividing the analysis period amount by the base period amount and multiplying the result by 100.

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.

The income level most likely to continue into the future and is commonly used in PE ratios and other market-based measures of performance is the_____________ .

Which of the following items is typically not included as a separate item after normal revenues and expenses?

The background on a company, its industry, and its economic setting is usually included in which of the following sections of a financial statement analysis report?

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

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

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

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