FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 13: Financial Statement Analysis

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 81

Multiple Choice

Review LaterAdd Note

Review Later

You are considering an investment in Apple stock and wish to assess the firm's short-term debt-paying ability.All of the following ratios are used to assess liquidity except:

A) Debt to equity ratio.
B) Inventory turnover.
C) Quick ratio.
D) Accounts receivable turnover.

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

Correct Answer

verified

Show Answer

Question 82

Matching

Review LaterAdd Note

Review Later

Select the term from the list provided that best matches each of the following descriptions or definitions:

Premises

Responses

An indication of the relative importance of an item of financial information

Absolute amounts

Analysis technique that compares amounts of the same item over two or more time periods

Book value per share

Measures of the long-term debt paying ability of the firm

Current ratio

Measure of profitability calculated by dividing net income by average total stockholders' equity

Horizontal analysis

Dollar amounts of individual items on financial statements can be misleading because they make no reference to the size of the company

Liquidity ratios

Measurements of a firms ability to generate income

Materiality

Study of the performance of ratios or other financial measures over time

Average days to sell inventory

Current assets divided by current liabilities

Price-earnings ratio

Measures of short-tem debt paying ability

Profitability ratios

Measure to compare values of different stocks, calculated by dividing market price per share by amount of income per share

Return on equity

Another way at looking at inventory turnover by converting the inventory turnover ratio into a number of days

Solvency ratios

Calculated by dividing total stockholders' equity less preferred rights by the number of common shares outstanding

Trend analysis

Premises

An indication of the relative importance of an item of financial information

Analysis technique that compares amounts of the same item over two or more time periods

Measures of the long-term debt paying ability of the firm

Measure of profitability calculated by dividing net income by average total stockholders' equity

Dollar amounts of individual items on financial statements can be misleading because they make no reference to the size of the company

Measurements of a firms ability to generate income

Study of the performance of ratios or other financial measures over time

Current assets divided by current liabilities

Measures of short-tem debt paying ability

Measure to compare values of different stocks, calculated by dividing market price per share by amount of income per share

Another way at looking at inventory turnover by converting the inventory turnover ratio into a number of days

Calculated by dividing total stockholders' equity less preferred rights by the number of common shares outstanding

Responses

Absolute amounts

Book value per share

Current ratio

Horizontal analysis

Liquidity ratios

Materiality

Average days to sell inventory

Price-earnings ratio

Profitability ratios

Return on equity

Solvency ratios

Trend analysis

Show Answer

Correct Answer

Premises

Responses

An indication of the relative importance of an item of financial information

Analysis technique that compares amounts of the same item over two or more time periods

Measures of the long-term debt paying ability of the firm

Measure of profitability calculated by dividing net income by average total stockholders' equity

Dollar amounts of individual items on financial statements can be misleading because they make no reference to the size of the company

Measurements of a firms ability to generate income

Study of the performance of ratios or other financial measures over time

Current assets divided by current liabilities

Measures of short-tem debt paying ability

Measure to compare values of different stocks, calculated by dividing market price per share by amount of income per share

Another way at looking at inventory turnover by converting the inventory turnover ratio into a number of days

Calculated by dividing total stockholders' equity less preferred rights by the number of common shares outstanding

Premises

An indication of the relative importance of an item of financial information

Analysis technique that compares amounts of the same item over two or more time periods

Measures of the long-term debt paying ability of the firm

Measure of profitability calculated by dividing net income by average total stockholders' equity

Dollar amounts of individual items on financial statements can be misleading because they make no reference to the size of the company

Measurements of a firms ability to generate income

Study of the performance of ratios or other financial measures over time

Current assets divided by current liabilities

Measures of short-tem debt paying ability

Measure to compare values of different stocks, calculated by dividing market price per share by amount of income per share

Another way at looking at inventory turnover by converting the inventory turnover ratio into a number of days

Calculated by dividing total stockholders' equity less preferred rights by the number of common shares outstanding

Responses

Question 83

Multiple Choice

Review LaterAdd Note

Which of the following statements regarding the analysis of absolute amounts of various accounts reported on the financial statements is incorrect?

Which type of approach should be used when evaluating corporate results using horizontal analysis?

The accounting profession assumes that financial statement users have an expert knowledge of business.

Current financial reporting standards assume that users of accounting information:

The Martin Company reported net income of $15,000 on gross sales of $80,000.The company has average total assets of $135,000,of which $102,000 is property,plant,and equipment.What is the company's return on investment? (Rounded to the nearest decimal point.)

A company has an obligation to provide highly detailed information on its financial statements.

Which of the following statements regarding horizontal analysis is incorrect?

The current ratio is one of the most common measures of solvency.

Cost of goods sold divided by average inventory is the formula for which of these analytical measures?

Indicate whether each of the following statements about financial statement analysis is true or false. Ratio analysis may involve studying relationships between an item reported on the balance sheet and another reported on the income statement.______ Comparing sales in Year 2 with sales for Year 1 is a form of vertical analysis.______ Comparing net income in Year 2 with sales for Year 2 is a form of horizontal analysis.______ Liquidity ratios measure a company's ability to generate cash flows in the short term.______ Working capital is calculated by using the following formula: current assets - current liabilities.______

Indicate whether each of the following statements is true or false. Some forms of financial statement analysis involve identifying changes in the same item for the same company over a period of time.______ Some forms of financial statement analysis involve comparing operations of different companies in the same industry.______ Vertical analysis is also called trend analysis.______ Vertical analysis refers to studying the behavior of individual financial statement items over several periods.______ Horizontal analysis could be done using changes in the absolute dollar amount of an item or trends in percentages.______

Maynard Company's balance sheet and income statement are provided below: $\begin{array}{c}\text { Maynard Company}\\\text { Balance Sheet}\\\text { As of December 31 ,}\\\begin{array}{lrr}\text { Cash } & \$ 83,500 & \$ 92,000 \\\text { Accounts receivable } & 94,000 & 90,000 \\\text { Inventory } & 62,500 & 60,000 \\\text { Plant and equipment, net } & 500,000 & 525,000 \\\text { Land } &\underline{ 150,000}& \underline{ 150,000} \\\text { Total assets } & \underline{ \$ 890,000} &\underline{ \$ 917,000} \\\text { Liabilities and Stockholders'Equity }\\\text { Accounts payable } & \$ 73,000 & \$ 62,000 \\\text { Notes payable } & 115,000 & 160,000\\\text { Capital stock, no par } & 440,000 & 400,000 \\\text { Retained earnings } &\underline{ 262,000 }& \underline{295,000} \\\text { Total liabilities and stockholders' equity } & \underline{\$ 890,000 }&\underline{ \$ 917,000}\end{array}\end{array}$ $\begin{array}{c}\text {Maynard Company}\\\text { Income Statement }\\\text {Years Ended December 31}\\\begin{array}{lrr}&\text { Year } 2 & \text { Year } 1\\\text { Sales } & \$ 549,000 &\$468,150 \\\text { Less cost of goods sold } & 360,000 & 289,500 \\\text { Gross margin } & 189,000 & 178,650 \\\text { Less operating expenses } & 86,500 & 55,450 \\\text { Income before taxes } & 102,500& 123,200 \\\text { Income taxes } & 18,500& 16,600\\\text { Net income } & \$ 84,000 & \$ 106,600\end{array}\end{array}$ The company paid cash dividends of $2.00 per share during Year 2.On December 31,Year 2,the stock was listed on the stock exchange at a price of $78.25 per share. Required: Compute the following ratios for Year 2: (a)Accounts receivable turnover (b)Average days to collect receivables (c)Inventory turnover (d)Average days to sell inventory (e)Debt to assets ratio (f)Debt to equity ratio (g)Net margin (h)Asset turnover (i)Return on investment (j)Dividend yield Round your answers to one decimal place.

Indicate whether each of the following statements about financial statement analysis is true or false. Meaningful comparisons between two companies generally should be made using percentage analysis or ratio analysis,not absolute amounts.______ The materiality of accounting information refers to whether it is viewed as favorable (good news)or unfavorable (bad news).______ Companies must account for immaterial items in compliance with generally accepted accounting principles.______ To judge the materiality of an absolute financial statement amount,one must consider the size of the company reporting it.______ Comparing percentages derived from financial statement analysis has the drawback of varying materiality levels.______