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Exam 17: Analysis of Financial Statements

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Question 71

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Use the following selected information from Farris, LLC to determine the Year 2 and Year 1 common size percents for operating expenses using Year 1 net sales as the base.

A) 36.4% for Year 2 and 41.1% for Year 1.
B) 55.0% for Year 2 and 56.0% for Year 1.
C) 119.4% for Year 2 and 100.0% for Year 1.
D) 103.8% for Year 2 and 100.0% for Year 1.
E) 20.0% for Year 2 and 23.0% for Year 1.

F) B) and D)
G) None of the above

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Question 72

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Industry standards for financial statement analysis:

A) Are based on a company's prior performance.
B) Are set by the government.
C) Are set by the financial performance and condition of the company's industry.
D) Are based on rules of thumb.
E) Compare a company's income with the prior year's income.

F) A) and B)
G) None of the above

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Question 73

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Selected current year end financial information for a company is presented below. Calculate the following company ratios: (a) Profit margin. (b) Total asset turnover. (c) Return on total assets. (d) Return on common stockholders' equity (assume the company has no preferred stock).

Financial statement analysis:

Refer to the following selected financial information from Hansen's, LLC. Compute the company's profit margin for Year 2.

______________________________ applies analytical tools to general-purpose financial statements and related data for making business decisions.

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

A corporation reported cash of $14,000 and total assets of $178,300. Its common-size percent for cash equals 7.85%. ($14,000/$178,300) x 100 = 7.85%

A company's board of directors analyzes financial statements to assess future company prospects for making operating decisions.

Trend analysis is a form of horizontal analysis that can reveal patterns in data across successive periods.

A company paid cash dividends on its preferred stock of $40,000 in the current year when its net income was $120,000 and its average common stockholders' equity was $640,000. What is the company's return on common stockholders' equity?

The ability to meet short-term obligations and to efficiently generate revenues is called:

A company's sales in Year 1 were $250,000 and in Year 2 were $287,500. Using Year 1 as the base year, the sales trend percent for Year 2 is:

Current assets minus current liabilities is:

Financial information for Omega Corporation is presented below. Calculate the following ratios for 2012: (a) Inventory turnover. (b) Accounts receivable turnover. (c) Return on total assets. (d) Times interest earned. (e) Total asset turnover.

A ratio expresses a mathematical relation between two quantities and can be expressed as a percent, rate, or proportion.

Evaluation of company performance can include comparison and/or assessment of:

______________________ ratios include the price-earnings ratio and dividend yield.

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

The standards for comparisons in financial statement analysis include (1) _____________, (2) ______________, (3) _______________, and (4) _____________.