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Exam 12: Financial Statement Analysis

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Question 1

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Stealth Company's 2013 average collection period is:

A) 73 days.
B) 104 days.
C) 109 days.
D) 128 days.

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

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Question 2

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Extraordinary items:

A) Include very large gains or losses from ordinary business activities.
B) Are items that are both unusual in nature and occur infrequently.
C) Are shown on the income statement before the tax effect.
D) Include the write-down of obsolete inventories.

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

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Question 3

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LeBron's Kids Camps has a current ratio of 0.75 to 1, based on current assets of $3 million and current liabilities of $4 million. How, if at all, will a $500,000 cash purchase of inventory affect the current ratio? How, if at all, will a $500,000 purchase of inventory on account affect the current ratio?

The price-earnings (PE) ratio compares a company's share price with its earnings per share.

The current ratio is:

Listed below are seven terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term placing the number designating the term in the space provided

Which of the following is a sign that a company cannot quickly turn its receivables into cash?

We use vertical analysis for income statement accounts, but not balance sheet accounts.

Explain the difference between conservative and aggressive accounting practices. Provide an example of a conservative accounting practice and explain why this practice is conservative. Provide an example of an aggressive accounting practice and explain why this practice is aggressive.

We can use ratios to help evaluate a firm's performance and financial position.

The debt to equity ratio is:

Return on assets is calculated as net income divided by ending total assets.

Return on assets equals:

Which of the following is an aggressive accounting practice?

Growth stocks have high expectations of future earnings growth, and therefore, usually trade at higher PE ratios.

Perform a vertical analysis on the following information: $\begin{array} { | l | r | r | } \hline & \underline { 12013 } & { \underline { \mathbf { 2 0 1 2 } } } \\\ \text { Cash } & \$ 500,000 & \$ 200,000 \\\hline \text { Accounts receivable } & 900,000 & 800,000 \\\hline \text { Inventory } & 700,000 & 500,000 \\\hline \text { Long-term assets } & 2,200,000 & 2,500,000 \\\hline \text { Total assets } & \$ 4,300,000 & \$ 4,000,000 \\\hline & & \\\hline\end{array}$

Which of the following is correct?

Vertical analysis expresses each item in a financial statement as a percentage of the same base amount.

Asset turnover measures sales volume in relation to the investment in assets, and is calculated as net sales divided by average total assets.

BC Training reports sales revenue of $2,200,000. Average inventory during the year was $200,000. The inventory turnover ratio for the year is 8.0. What amount of gross profit would the company report in its income statement?