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Exam 17: Financial Statement Analysis

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Question 81

Multiple Choice

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Which of the following is not a characteristic evaluated in ratio analysis?

A) liquidity
B) profitability
C) solvency
D) marketability

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

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Question 82

True/False

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Reporting unusual items separately on the income statement allows investors to isolate the effects of these items on income and cash flows.

A) True
B) False

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Question 83

Multiple Choice

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The following information pertains to Diane Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. Use this information to answer the questions that follow. ​ -Using the data provided for Diane Company, what are the dividends per common share?

Why would you or why wouldn't you compare an organization like Ford Motor Company to the local car dealer "Johnson City Ford/Lincoln/Mercury" using vertical and horizontal analysis?

The number of days' sales in inventory is one means of expressing the relationship between the cost of goods sold and inventory.

When you are interpreting financial ratios, it is useful to compare a company's ratios to the same ratios from a prior period or to the ratios of another company in the same industry.

Richards Corporation had net income of $250,000 and paid dividends to common stockholders of $50,000. It had 50,000 shares of common stock outstanding during the entire year. Richards Corporation's common stock is selling for $35 per share. The price-earnings ratio is

Match each definition that follows with the term (a-h) it defines. -Measures the risk that interest payments will not be made if earnings decrease

Horizontal analysis is a technique for evaluating financial statement data

Match each ratio that follows to its use (items a-h) . Items may be used more than once. -Earnings per share (EPS) on common stock

Unusual items affecting the prior period's income statement consist of changes in or errors in applying accounting principles.

On a common-sized income statement, 100% is the

Use this information for Kellman Company to answer the questions that follow. ​ The balance sheets at the end of each of the first two years of operations indicate the following: ​ $\text { Kellman Company }$ $\begin{array}{lrr}&\text { Year } 2&\text { Year } 1\\\text { Total current assets } & \$ 600,000 & \$ 560,000 \\\text { Total investments } & 60,000 & 40,000 \\\text { Total property, plant, and equipment } & 900,000 & 700,000 \\\text { Total current liabilities } & 125,000 & 65,000 \\\text { Total long-term liabilities } & 350,000 & 250,000 \\\text { Preferred } 9 \% \text { stock, } \$ 100 \text { par } & 100,000 & 100,000 \\\text { Common stock, } \$ 10 \text { par } & 600,000 & 600,000 \\\text { Paid-in capital in excess of par-Common stock } & 75,000 & 75,000 \\\text { Retained earnings } & 310,000 & 210,000\end{array}$ -Using the balance sheets for Kellman Company, if net income is $150,000 and interest expense is $20,000 for Year 2, what is the return on total assets for the year?

What is a major advantage of using percentages rather than dollar changes in doing horizontal and vertical analyses?

In computing the return on total assets, interest expense is subtracted from net income before dividing by average total assets.

A loss due to a discontinued operation should be reported on the income statement

A company reports the following: Net income$270,000 Preferred dividends$10,000 Shares of common stock outstanding20,000 Market price per share of common stock$36.40 ?Calculate the company's price-earnings ratio. Round your answer to one decimal place.

Based on the following data, what is the accounts receivable turnover?Sales on account during year$700,000Cost of goods sold during year270,000Accounts receivable, beginning of year45,000Accounts receivable, end of year35,000Inventory, beginning of year90,000Inventory, end of year110,000

The following items are reported on a company's balance sheet: Cash$230,000 Marketable securities50,000 Accounts receivable200,000 Inventory240,000 Accounts payable300,000? Determine the (a) current ratio and (b) quick ratio. Round your answers to one decimal place.

Which of the following is the most useful in analyzing companies of different sizes?