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Exam 12: Financial Statement Analysis

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Question 1

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United Products began the year with an Accounts Receivable balance of $250,000,and had a year-end balance of $280,000.Credit sales of $800,000 generated a gross profit of $150,000.Calculate the receivables turnover ratio for the year.

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Question 2

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When using vertical analysis,we express income statement accounts as a percentage of:

A) Net income.
B) Gross profit.
C) Sales.
D) Total assets.

E) C) and D)
F) B) and C)

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Question 3

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Stealth Company's 2013 return on assets is:

We report extraordinary items separately,net of taxes,near the bottom of the income statement just below discontinued operations.

Assuming an acid-test ratio of 1.0,how will the purchase of inventory with cash affect the ratio?

Richard's Sporting Goods reports net income of $100,000,net sales of $500,000,and average assets of $1,000,000.The profit margin is:

Which of the following is a conservative accounting practice?

A low receivables turnover ratio is a positive sign that a company can quickly turn its receivables into cash.

Nerf Mania reports net income of $500,000,net sales of $4,000,000,and average assets of $2,000,000.The profit margin is:

The following income statement and balance sheets for Laser World are provided: $\begin{array} { | c | }\hline\text { Laser World } \\\text { Income Statement }\\\text { For the year-ended December 31, 2012 }\\ \hline { \begin{array} {lr } \text { Sales revenue } & \$ 2,200,000 \\\text { Cost of goods sold } & 1,500,000 \\\text { Gross profit } & 700,000\\\text { Expenses: }\\\text { Operating expenses } & 350,000 \\\text { Depreciation expense } & 70,000 \\\text { Loss on sale of land } & 5,000 \\\text { Interest expense } & 25,000 \\\text { Income tax expense } & 60,000\\\text { Total expenses }&510,000\\\text { Net income }&\$190,000\\\end{array} } \\\hline\end{array}$ Earnings per share for the year-ended December 31,2012,is $1.90.The closing stock price on December 31,2012,is $30.40. Calculate the following profitability ratios for 2012: $\begin{array}{ll}\text { 1. Gross profit ratio } & \text { 4. Asset turnover } \\\text { 2. Return on assets } & \text { 5. Return on equity } \\\text { 3. Profit margin } & \text { 6. Price-earnings ratio }\end{array}$

When using a company's current earnings to estimate future earnings performance,investors normally should exclude discontinued operations and extraordinary items.

The acid-test ratio is:

Assume a company's current ratio and acid-test ratio are less than 1.0 before it purchases inventory on credit.When it makes the purchase:

We calculate the times interest earned ratio by dividing net income by interest expense.

Stealth Company's 2013 average days in inventory is:

Stealth Company's 2013 average collection period is:

Explain the difference between vertical and horizontal analysis.

Perform a vertical analysis on the following information: $\begin{array}{|l|r|r|}\hline&2013&2012\\\hline \text { Cash } & \$ 500,000 & \$ 200,000 \\\hline \text { Accounts receivable } & 900,000 & 800,000 \\\hline \text { Inventory } & 700,000 & 500,000 \\\hline \text { Long-term assets } & 2,200,000 & 2,500,000 \\\hline \text { Total assets } & \$ 4,300,000 & \$ 4,000,000\\\hline\end{array}$

Which of the following is a positive sign that a company is selling its inventory quickly?

Which of the following is an example of horizontal analysis?