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Exam 13: Analyzing and Interpreting Financial Statements

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Question 101

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The ability to provide financial rewards sufficient to attract and retain financing is called:

A) Liquidity and efficiency.
B) Solvency.
C) Profitability.
D) Market prospects.
E) Creditworthiness.

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

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Question 102

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

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Question 103

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Refer to the following selected financial information from McCormik, LLC. Compute the company's current ratio for Year 2.

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 were the trend percents for Years 2 and 3 compared to the base year?

A corporation reported cash of $27,000 and total assets of $461,000 on its balance sheet. Its common-size percent for cash equals:

Comparative statements for Warmer Corporation are shown below: Calculate trend percentages for all income statement amounts shown and comment on the results. Use 2016 as the base year. Comment on the results.

The following summaries from the income statements and balance sheets of Kouris Company and Brittania, Inc. are presented below. (1) For both companies for 2017, compute the: (a) Current ratio (b) Acid-test ratio (c) Accounts receivable turnover (d) Inventory turnover (e) Days' sales in inventory (f) Days' sales uncollected Which company do you consider to be the better short-term credit risk? Explain. (2) For both companies for 2017, compute the: (a) Profit margin ratio (b) Return on total assets (c) Return on common stockholders' equity Which company do you consider to have better profitability ratios?

A company reported net income of $78,000 and had 15,000 common shares outstanding throughout the current year. At year-end, the price per share of the company's stock was $49.40. What is the company's year-end price-earnings ratio?

Industry standards for financial statement analysis:

Refer to the following selected financial information from Graphics, Inc. Compute the company's times interest earned.

For each ratio listed, identify whether the change in ratio value from 2016 to 2017 is usually regards as favorable (F) or unfavorable (U).

Express the following income statement information in common-size percentages (round to nearest whole percent). Comment on the results.

Comparative financial statements in which each individual financial statement amount is expressed as a percentage of a base amount are called:

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.

Powers Company reported Net Sales of $1,200,000 and average Accounts Receivable, net of $78,500. The accounts receivable turnover ratio is:

Describe the purpose of vertical financial statement analysis and how it is applied.

Market prospects are the ability to provide financial rewards sufficient to attract and retain financing.

Comparative financial statements are reports that show financial amounts in side by side columns on a single statement for analysis purposes.

The standards for comparisons when interpreting measures from financial statement analysis include (1) ___________, (2) ____________, (3) _____________, and (4) _______________.

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: