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Exam 13: Financial Statement Analysis

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Question 61

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If the company purchased a $50,000 piece of equipment by paying $20,000 and having the rest financed with a short-term note from the bank,then immediately after this transaction what is the expected impact on the current ratio?

A) Current assets decrease therefore,the current ratio increases.
B) Current liabilities decrease therefore,the current ratio decreases.
C) Current assets and current liabilities decrease by the same amount therefore,the current ratio increases.
D) Current assets decrease and current liabilities increase by the same amount therefore,the current ratio decreases.

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

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Question 62

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The Phlegar Company reported the following income for 2015: The company's net margin is closest to:

A) 12%
B) 46%
C) 20%
D) 22%

E) All of the above
F) A) and B)

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Question 63

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Net income divided by sales is the formula for which of these analytical measures?

Which ratio would you use to examine a company's ability to pay its debts in the short- term?

The Marvin Company reported net income of $18,400 on gross sales of $80,000.The company has total average assets of $115,200,of which $100,000 is property,plant and equipment.The company's return on investment is closest to:

Beta Company provided the following balance sheet: What is the company's plant assets to long-term liabilities ratio?

Gleason Company and Henry Company are similar and similar-sized companies operating in the same industry.At the end of the most recent year,Gleason's price/earnings ratio was 22.0,and Henry's price/earnings ratio was 14.2.What conclusion would you draw based on the difference in price/earnings ratios for the two companies?

Indicate whether each of the following statements about financial statement analysis is true or false. _____ a)A common size income statement is prepared by converting each component to a percentage of net income. _____ b)Common size financial statements are a form of vertical analysis,but the common size statements for two or more years may usefully be compared. _____ c)Vertical analysis of a balance sheet involves converting each component to a percentage of stockholders' equity. _____ d)Small percentage changes resulting from vertical analysis may still represent large dollar amounts;therefore,changes in both absolute dollar amounts and percentages should be examined. _____ e)Vertical analysis of a company's balance sheet is useful in assessing its liquidity.

When debt is used to finance purchase of assets,the term or time span of the debt should be similar to the lifespan of the assets.

On January 1,2015 Gatewood sold inventory on account for $8,000 and recorded cost of goods sold of $6,100.Which of the following statement is incorrect?

The only requirement involved in communicating useful information is that the information be accurate.

Earnings before interest and taxes divided by interest expense is the formula for which of these analytical measures?

Which of the following statements about specific ratios is incorrect?

Which ratio measures the percentage of company's assets that are financed by debt?

Which of the following is a potential limitation of financial statement analysis?

Indicate whether each of the following statements about financial statement analysis is true or false. _____ a)Having too little inventory can hurt a company's profitability because of lost sales. _____ b)Having too much inventory can hurt a company's profitability because of excess costs. _____ c)Generally,a lower inventory turnover indicates that merchandise is being handled more efficiently. _____ d)Average days to sell inventory is the number of times,on average,that inventory is replaced during the year. _____ e)Values for the inventory turnover ratio vary widely among different industries.

The debt to equity ratio can be used to assess a firm's solvency.

Select the incorrect statement regarding the analysis of absolute amounts of various accounts reported on the financial statements.

A limitation of financial statement analysis stems from the discretion of management to choose accounting procedures that cast the best light on the firm's performance.

The Valencia Company reported net income of $80,000 on 20,000 outstanding common shares.Preferred dividends total $12,000.On the most recent trading day,the preferred shares sold at $50 and the common shares sold at $68.This company's current price-earnings ratio is closest to: