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Exam 13: Analysis of Financial Statements

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Question 71

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Refer to the following selected financial information from Phantom Corp. Compute the company's inventory turnover for Year 2. $\begin{array}{lll}& \text { Year 2 } & \text { Year 1 } \\\text { Merchandise inventory } & 271,000 & 253,500 \\\text { Cost of goods sold }& 486,400 & 433,100\end{array}$

A) 1.79.
B) 1.71.
C) 1.85.
D) 0.93.
E) 1.75.

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

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Question 72

Multiple Choice

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Use the following selected information from Whitman Corp. to determine the Year 2 and Year 1 trend percentages for cost of goods sold using Year 1 as the base. $\begin{array}{lrr}& \text { Year } 2 & \text { Year } 1 \\\text { Net sales } & \$ 276,200 & \$ 231,400 \\\text { Cost of goods sold } & 151,900 & 129,590 \\\text { Operating expenses } & 55,240 & 53,240 \\\text { Net earnings } & 27,820 & 19,820\end{array}$

A) 36.4% for Year 2 and 41.1% for Year 1.
B) 55.0% for Year 2 and 56.0% for Year 1.
C) 119.4% for Year 2 and 100.0% for Year 1.
D) 117.2% for Year 2 and 100.0% for Year 1.
E) 65.1% for Year 2 and 64.6% for Year 1.

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

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Question 73

Multiple Choice

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To compute trend percentages the analyst should:

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

________ is a method of analysis used to evaluate individual financial statement items or groups of items in terms of a specific base amount.

Refer to the following selected financial information from Whirlpool Company. Compute the company's days' sales uncollected for Year 2. (Use 365 days a year.) $\begin{array}{lrr} & \text { Year 2 } & \text { Year 1 } \\\text { Accounts receivable, net } & 86,500 & 82,750 \\\text { Net sales } & 723,000 & 693,000\end{array}$

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

Refer to the following selected financial information from Gomez Electronics. Compute the company's times interest earned for Year 2. $\begin{array}{lrr}& \text { Year 2 } & \text { Year 1 } \\\text { Net sales } & \$ 478,500 & \$ 426,250 \\\text { Cost of goods sold } & 276,300 & 250,120 \\\text { Interest expense } & 9,700 & 10,700 \\\text { Net income before tax } & 67,250 & 52,680 \\\text { Net income after tax } & 46,050 & 39,900 \\\text { Total assets } & 317,100 & 288,000 \\\text { Total liabilities } & 181,400 & 167,300 \\\text { Total equity } & 135,700 & 120,700\end{array}$

A corporation reported cash of $14,000, total assets of $178,300, and net income of $50,000. Its common-size percent for cash equals 7.85%.

The four building blocks of financial analysis are (1)________, (2) ________, (3) ________ and (4) ________.

Standards for comparisons in financial statement analysis do not include:

Comparative financial statements are reports that show financial amounts in side by side columns on a single statement for analysis purposes.

Financial statements with data for two or more successive accounting periods placed in columns side by side, sometimes with changes shown in both dollar amounts and percentages, are referred to as:

Market prospects are the ability to generate positive market expectations.

A company reports basic earnings per share of $3.50, cash dividends per share of $0.75, and a market price per share of $64.75. The company's dividend yield equals 21.4%.

Comparative financial statements in which each individual financial statement amount is expressed as a percentage of a base amount are called:

Express the following income statement information in common-size percentages and in trend percentages using Year 1 as the base year.

A company had a market price of $27.50 per share, earnings per share of $1.25, and dividends per share of $0.40. Its price-earnings ratio equals:

Express the following income statement information in common-size percentages (round to nearest whole percent). Comment on the results. Haans Corp. Comparative Income Statements For the years ended December 31 $\begin{array}{|l|r|r|}\hline & \text { Year 2 } & \text { Year 1 } \\\hline \text { Sales } & \$ 1,200,000 & \$ 1,000,000 \\\hline \text { Cost of goods sold } & 804,000 & 650,000 \\\hline \text { Gross profit } & \$ 396,000 \$ & 350,000 \\\hline \text { Selling expenses } & 132,000 & 120,000 \\\hline \text { Administrative expenses } & 180,000 & 150,000 \\\hline \text { Net income } & 4,000 & 80,000 \\\hline\end{array}$

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