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Exam 13: Analyzing and Interpreting Financial Statements

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Question 71

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The building blocks of financial statement analysis include (1)liquidity,(2)salability,(3)solvency,and (4)profitability.

A) True
B) False

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Question 72

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Refer to the following selected financial information from Frankle Corp.Compute the company's working capital. Clivent Assets $~~~~~~~~~~~~$ 306,450 Plarit assets $~~~~~~~~~~~~~~~$ 338,000 Current Liabilities $~~~~~~$ 107,800 Net sales $~~~~~~~~~~~~~~~~~~~~$ 676,000 Net Income $~~~~~~~~~~~~~~~~$ 75,000

A) $536,650.
B) $230,200.
C) $568,200.
D) $198,650.
E) $231,450.

F) A) and C)
G) B) and C)

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Question 73

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The current ratio is calculated as current liabilities divided by current assets.

External users of accounting information make the strategic and operating decisions of a company.

If a company is comparing its financial condition or performance to a base amount in the same time period,it is using vertical analysis.

A brief focus on important analysis results and conclusions is usually included in which of the following sections of a financial statement analysis report:

Refer to the following selected financial information from Shakley's Incorporated.Compute the company's times interest earned for Year 2. $\begin{array} { l r r } & \text { Year 2 } & \text { Year } 1 \\\text { Net sales } & \$ 478,500 & \$ 426,250 \\\text { Cost of goods sold } & 276,300 & 250,120 \\\text { Irterest experse } & 9,700 & 10,700 \\\text { Net incomebefore tax }& 67,250 & 52,680 \\\text { Net income after tax } & 46,050 & 39,900 \\\text { Total assets } & 317,100 & 288,000 \\\text { Total liabilities }& 181,40 0 & 167,300 \\\text { Total equity } & 135,70 0 & 120,700\end{array}$

Horizontal analysis is used to reveal patterns in data covering two or more successive periods.

A corporation reports the following year-end balance sheet data.Calculate the following ratios: (a)working capital (b)acid-test ratio (c)current ratio (d)debt ratio (e)equity ratio (f)debt-to-equity ratio Cash………………………..$ 50,000 Current liabilities $ 64,000 Accounts receivable……….35,000 Long-term liabilities……….72,000 Inventory…………………..60,000 Common stock……………..100,000 Equipment………………… 140,000 Retained earnings………….49,000 Total assets………………..$285,000 Total liabilities and equity $285,000

Identify and explain the four building blocks of financial statement analysis.

Comparative calendar-year financial data for a company are shown below.Calculate the following ratios for the company for Year 2: (a)accounts receivable turnover (b)day's sales uncollected (c)inventory turnover (d)days' sales in inventory

Common-size statements:

Horizontal analysis is the comparison of a company's financial condition and performance to a base amount in the same time period.

The ability to meet short-term obligations and to efficiently generate revenues is called:

Refer to the following selected financial information from Keller Company.Compute the company's debt to equity for Year 2. $\begin{array}{lrr} & \text { Year 2 } & \text { Year } 1 \\\text { Total assets } & \$ 327,800& \$ 301,000 \\\text { Total liabilities } & 171,400 & 169,300 \\\text { Total equity } & 156,400 & 131,700\end{array}$

Financial reporting refers to:

Information from a manufacturing company's current year income statement follows.Calculate the company's (a)profit margin ratio,(b)gross margin ratio,and (c)times interest earned. $\begin{array} { l r } \text { Sales } & \$ 850,000 \\\text { Cost of goods sold } & 455,000 \\\text { Gross profit } & \$ 395,000 \\\text { Operating expenses } & 260,000 \\\text { Operating income } & \$ 135,000 \\\text { Interest expense } & \underline { 32,000} \\\text { Income before taxes } & \$ 103,000 \\\text { Income taxes expense } & 12,400 \\\text { Net income } & \underline { \$ 90,600}\end{array}$

Refer to the following selected financial information from Graceworks,Corp.Compute the company's days' sales in inventory for Year 2.(Use 365 days a year.) $\begin{array} { l l } &\text { Year 2 } & \text { Year } 1 \\Merchardise~ irventory&271,000 & 253,500 \\Cost ~of~ goods~ sold&486,400 & 433,100\end{array}$

The percent change of a comparative financial statement item is computed by subtracting the base period amount from the analysis period amount,dividing the result by the base period amount and multiplying that result by 100.

Horizontal analysis is used to reveal patterns in data covering successive periods.