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Exam 13: Analyzing and Interpreting Financial Statements

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Question 61

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Gains and losses that are normal and frequent are reported as:

A) Part of continuing operations in after-tax dollars.
B) A prior period adjustment on the statement of retained earnings.
C) A gain or loss from disposing of the discontinued segment's net assets.
D) A gain or loss from operation of a discontinued segment.
E) Part of continuing operations in before tax dollars.

F) C) and D)
G) B) and C)

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Question 62

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Total asset turnover reflects a company's ability to use its assets to generate sales and is an important indication of operating efficiency.

A) True
B) False

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Question 63

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Profitability is the ability to generate future revenues and meet long-term obligations.

A company reported net income of $78,000 and had 15,000 common shares outstanding throughout the current year.At year-end,the price per share of the company's stock was $49.40.What is the company's year-end price-earnings ratio?

Refer to the following selected financial information from McCormik,LLC.Compute the company's inventory turnover for Year 2. $\begin{array} { l r r } & { \text { Year 2 } } & \text { Year 1 } \\\text { Cash } & \$37,500 & \$ 36,850 \\\text { Short-term irvestrnents }& 90,000 & 90,000 \\\text { Accounts receivable, net } & 85,500 & 86,250 \\\text { Merchardise irventory } & 121,00 0 & 117,000 \\\text { Prepaid experses } & 12,100 & 13,500 \\\text { Plart assets } & 388,000 & 392,000 \\\text { Accounts payable } & 113,40 0 & 111,750 \\\text { Net sales } & 711,000 & 706,000 \\\text { Cost of goods sold }& 390,000 & 385,500\end{array}$

One of several ratios that reflects solvency includes the:

What is the purpose of a good financial statement analysis report? What are the key components?

External users of financial information:

How long a company holds inventory before selling it can be measured by dividing cost of goods sold by the average inventory balance to determine the:

Refer to the following selected financial information from McCormik,LLC.Compute the company's current ratio for Year 2. $\begin{array} { l r r } & { \text { Year 2 } } & \text { Year 1 } \\\text { Cash } & \$37,500 & \$ 36,850 \\\text { Short-term irvestrnents }& 90,000 & 90,000 \\\text { Accounts receivable, net } & 85,500 & 86,250 \\\text { Merchardise irventory } & 121,00 0 & 117,000 \\\text { Prepaid experses } & 12,100 & 13,500 \\\text { Plart assets } & 388,000 & 392,000 \\\text { Accounts payable } & 113,40 0 & 111,750 \\\text { Net sales } & 711,000 & 706,000 \\\text { Cost of goods sold }& 390,000 & 385,500\end{array}$

A good financial report does not link interpretations and conclusions of analysis with the underlying information.

Working capital is computed as current assets minus current liabilities.

Liquidity and efficiency are the ability to meet short-term obligations and to efficiently generate revenue.

A company with a high inventory turnover requires a smaller investment in inventory than one producing the same sales with a lower turnover.

Rajan Company's most recent balance sheet reported total assets of $1.9 million,total liabilities of $0.8 million,and total equity of $1.1 million.Its Debt to equity ratio is:

Use the following selected information from Wheeler,LLC to determine the 2018 and 2017 common size percentages for operating expenses using Net sales as the base. $\begin{array}{lrrl}&2018&&2017\\Net ~sales&\$ 276,200& & \$ 231,400 \\Cost ~of ~goods ~sold&151,90 0 & & 129,590 \\Operatirg ~expenses&55,240 & & 53,240 \\Net ~earmirgs&27,820 & & 19,820\end{array}$

To compute trend percentages the analyst should:

Standards for comparison when interpreting financial statement analysis include competitor and industry performance data.

Refer to the following selected financial information from Dodge Company.Compute the company's acid-test ratio. $\begin{array}{lr}\text { Cash } & \$ 42,250 \\\text { Short-term investments } & 60,000 \\\text { Accounts receivable, net } & 79,500 \\\text { Merchandise inventory } & 115,000 \\\text { Prepaid expenses } & 9,700 \\\text { Accounts payable } & 111,400\end{array}$

Refer to the following selected financial information from McCormik,LLC.Compute the company's days' sales uncollected for Year 2.(Use 365 days a year.) $\begin{array} { l r r } & { \text { Year 2 } } & \text { Year 1 } \\\text { Cash } & \$37,500 & \$ 36,850 \\\text { Short-term irvestrnents }& 90,000 & 90,000 \\\text { Accounts receivable, net } & 85,500 & 86,250 \\\text { Merchardise irventory } & 121,00 0 & 117,000 \\\text { Prepaid experses } & 12,100 & 13,500 \\\text { Plart assets } & 388,000 & 392,000 \\\text { Accounts payable } & 113,40 0 & 111,750 \\\text { Net sales } & 711,000 & 706,000 \\\text { Cost of goods sold }& 390,000 & 385,500\end{array}$