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Exam 17: Analysis of Financial Statements

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Question 101

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Use the following selected information from Wheeler, LLC to determine the 2017 and 2016 common size percentages for operating expenses using Net sales as the base. $\begin{array} { | l | r | r | } \hline & { \mathbf { 2 0 1 7 } } & { \mathbf { 2 0 1 6 } } \\\hline \text { Net sales } & \$ 276,200 & \$ 231,400 \\\hline \text { Cost of goods sold } & 151,900 & 129,590 \\\hline \text { Operating expenses } & 55,240 & 53,240 \\\hline \text { Net earnings } & 27,820 & 19,820 \\\hline\end{array}$

A) 23.9% for 2017 and 23.0% for 2016.
B) 103.8% for 2017 and 100.0% for 2016.
C) 36.4% for 2017 and 41.1% for 2016.
D) 55.0% for 2017 and 56.0% for 2016.
E) 20.0% for 2017 and 23.0% for 2016.

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Question 102

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Financial statement analysis involves all of the following except:

A) Assuring that the company will be more profitable in the future.
B) Helping to reduce uncertainty in decision-making.
C) Helping users to make better decisions.
D) The application of analytical tools to general-purpose financial statements and related data for making business decisions.
E) Transforming accounting data into useful information for decision-making.

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Question 103

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Intra-company standards for financial statement analysis:

Trend percentage is calculated by dividing ________ by ________ and multiplying the result by 100.

A ratio expresses a mathematical relation between two quantities and can be expressed as a percent, rate, or proportion.

A company's sales in Year 1 were $280,000, and its sales in Year 2 were $341,600. Using Year 1 as the base year, what is the sales trend percent for Year 2?

Refer to the following selected financial information from Graphics, Inc. Compute the company's times interest earned. $\begin{array} { | l | r | } \hline & \\\hline \text { Interest expense } & \$ 9,100 \\\hline \text { Income tax expense } & 22,700 \\\hline \text { Net income after tax } & 56,500 \\\hline\end{array}$

If a company is comparing this year's financial performance to last year's financial performance, it is using horizontal analysis.

Refer to the following selected financial information from McCormik, LLC. Compute the company's accounts receivable turnover for Year 2. $\begin{array} { | l | r | r | } \hline & { \text { Year 2 } } & { \text { Year 1 } } \\\hline \text { Cash } & \$ 37,500 & 3 6 , 8 5 0 \\\hline \text { Short-term investments } & 90,000 & 90,000 \\\hline \text { Accounts receivable, net } & 85,500 & 86,250 \\\hline \text { Merchandise inventory } & 121,000 & 117,000 \\\hline \text { Prepaid expenses } & 12,100 & 13,500 \\\hline \text { Plant assets } & 388,000 & 392,000 \\\hline \text { Accounts payable } & 113,400 & 111.750 \\\hline \text { Net sales } & 711,000 & 706,000 \\\hline \text { Cost of goods sold } & 390,000 & 385,500 \\\hline\end{array}$

Evaluation of company performance can include comparison and/or assessment of all but which of the following:

Selected current year company information follows: $\begin{array} { l | r } \text { Net incane } & \$ 15,953 \\\hline \text { Net sal es } & 712,855 \\\hline \text { Tutal liabilities, bepinging-year } & 83,932 \\\hline \text { Tutal liabilities, end-uf-year } & 103,201 \\\hline \text { Tutal stuckhalder' equity, beginging-year..... } & 198,935 \\\hline\end{array}$ The return on total assets is:

The ability to generate positive market expectations is called:

Refer to the following selected financial information from McCormik, LLC. Compute the company's inventory turnover for Year 2. $\begin{array} { | l | r | r | } \hline & { \text { Year 2 } } & { \text { Year 1 } } \\\hline \text { Cash } & \$ 37,500 & 3 6 , 8 5 0 \\\hline \text { Short-term investments } & 90,000 & 90,000 \\\hline \text { Accounts receivable, net } & 85,500 & 86,250 \\\hline \text { Merchandise inventory } & 121,000 & 117,000 \\\hline \text { Prepaid expenses } & 12,100 & 13,500 \\\hline \text { Plant assets } & 388,000 & 392,000 \\\hline \text { Accounts payable } & 113,400 & 111.750 \\\hline \text { Net sales } & 711,000 & 706,000 \\\hline \text { Cost of goods sold } & 390,000 & 385,500 \\\hline\end{array}$

General-purpose financial statements include the (1)________, (2) ________, (3) ________, (4) ________ and (5) ________.

Net sales divided by Average accounts receivable, net is the:

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.) $\begin{array} { | l | r | r | } \hline & \text { Year 2 } & { \text { Year 1 } } \\\hline \text { Merchandise inventory } & 271,000 & 253,500 \\\hline \text { Cost of goods sold } & 486,400 & 433,100 \\\hline\end{array}$

A financial statement analysis report helps to reduce uncertainty in business decisions through a rigorous and sound evaluation.

Match each of the following terms with the appropriate formulas. A. Days' sales in inventory B. Dividend yield C. Total asset turnover D. Inventory turnover E. Return on common stockholders' equity F. Gross margin ratio G. Days' sales uncollected H. Profit margin ratio I. Times interest earned J. Debt ratio ________ (1) Net income - Preferred dividends Average common stockholders' equity ________ (2) Accounts receivable * 365 Net sales ________ (3) Total liabilities Total assets ________ (4) Income before interest expense and income taxes Interest expense ________ (5) Annual cash dividends per share Market price per share ________ (6) Net sales - Cost of goods sold Net sales ________ (7) Cost of goods sold Average inventory ________ (8) ______Net sales Average total assets ________ (9) Net income Net sales ________ (10) Ending inventory * 365 Cost of goods sold

To compute trend percentages the analyst should:

Net income divided by average total assets is: