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Exam 13: Analysis of Financial Statements

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Question 41

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

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A good financial statement analysis repo...

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Question 42

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A common focus of financial statement users in evaluating a company's performance and financial condition includes evaluating its (1)________, (2)________,and (3)________.

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past and current per...

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Question 43

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The comparison of a company's financial condition and performance to a base amount is known as ________.

A company's board of directors analyzes financial statements to assess future company prospects for making operating decisions.

$\begin{array} { | l | r | r | } \hline&{ \text { Year 2 } } & { \text { Year 1 } } \\\hline \text { Cash } & \$ 37,500 & 36,850 \\\hline \text { Short-term investments } & 90,000 & 90,000 \\\hline \text { Accounts receivable, net } & 85,500 & 86,250 \\\hline \text { Merchandise inventory } & 121,000 & 117,000 \\\hline \text { Prepaid expenses } & 12,100 & 13,500 \\\hline \text { Plant assets } & 388,000 & 392,000 \\\hline \text { Accounts payable } & 113,400 & 111.750 \\\hline \text { Net sales } & 711,000 & 706,000 \\\hline \text { Cost of goods sold } & 390,000 & 385,500 \\\hline\end{array}$ -Refer to the following selected financial information from McCormik,LLC.Compute the company's current ratio for Year 2.

Comparative calendar-year financial data for a company are shown below.Calculate the following ratios for the company for 2018: (a)accounts receivable turnover (b)day's sales uncollected (c)inventory turnover (d)days' sales in inventory $\begin{array} { | l | r | r | } \hline & \underline { 2018 } & { 2017 } \\\hline \text { Sales } & \$ 720,000 & \$ 607,500 \\\hline \text { Cost of goods sold } & 450,000 & 382,700 \\\hline \text { Operating expenses } & 168,500 & 134,900 \\\hline \text { Net income } & 51,200 & 51,700 \\\hline & & \\\hline & \text { December } 31 , & \text { December } 31 , \\\hline & \underline { 2018 } & \underline { 2017 } \\\hline \text { Accounts receivable (net) } & \$ 157,500 & \$ 162,500 \\\hline \text { Inventory } & 139,500 & 110,500 \\\hline \text { Total assets } & 1,012,500 & 944,800 \\\hline\end{array}$

$\begin{array} { | l | r | } \hline \text { Current Assets } & 306,450 \\\hline \text { Plant assets } & 338,000 \\\hline \text { Current Liabilities } & 107,800 \\\hline \text { Net sales } & 676,000 \\\hline \text { Net Income } & 75,000 \\\hline\end{array}$ -Refer to the following selected financial information from Frankle Corp.Compute the company's working capital.

Trend analysis of financial statement items can include comparisons of relations between items on different financial statements.

Comparative statements for Warmer Corporation are shown below: $\begin{array}{c}\text {Warmer Corporation}\\\text {Comparative Income Statements}\\\text {For the years ended December 31}\\\begin{array}{|l|r|r|r|}\hline&2018&2017&2016\\\hline \text { Sales } & \$ 14,800 & \$ 13,229 & \$ 13,994 \\\hline \text { Cost of goods sold } & 8,22 & 8,661 & 8,37 \\\hline \text { Gross profit } & 6,57 & 4,568 & 5,619 \\\hline \text { Operating expenses } & 3,664 & 3,576 & 3,487 \\\hline \text { Operating income } & \$ 2,911 & \$ 992 & \$ 2,132 \\\hline\end{array}\end{array}$ Calculate trend percentages for all income statement amounts shown and comment on the results.Use 2016 as the base year.Comment on the results.

Use the following information from the current year financial statements of a company to calculate the ratios below: (a)Current ratio. (b)Accounts receivable turnover.(Assume the prior year's accounts receivable balance was $100,000.) (c)Days' sales uncollected. (d)Inventory turnover.(Assume the prior year's inventory was $50,200.) (e)Times interest earned ratio. (f)Return on common stockholders' equity.(Assume the prior year's common stock balance was $480,000 and the retained earnings balance was $128,000.) (g)Earnings per share (assuming the corporation has a simple capital structure,with only common stock outstanding). (h)Price earnings ratio.(Assume the company's stock is selling for $26 per share.) (i)Divided yield ratio.(Assume that the company paid $1.25 per share in cash dividends.)

Describe ratio analysis including its purpose,application,and interpretation.

Intra-company analysis compares a company's current performance to its own prior performance.

Match the financial analysis building block most appropriately associated with each ratio. Each building block may be used more than once. -Return on Total Assets

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

The base amount for a common-size balance sheet is usually total assets.

A corporation reported cash of $27,000 and total assets of $461,000 on its balance sheet.Its common-size percent for cash equals:

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

The comparison of a company's financial condition and performance across time is known as ________.

Clairmont Industries reported Net income of $283,000 and average Total assets of $637,000.The Return on total assets is:

Selected current year company information follows: $\begin{array} { | l| r| } \hline \text { Net income } & \$ 15,953 \\\hline \text { Net sales } & 712,855 \\\hline \text { Total liabilities, beginning-year } & 83,932 \\\hline \text { Total liabilities, end-of-year } & 103,201 \\\hline \text { Total stockholders' equity, beginning-year.... } & 198,935 \\\hline \text { Total stockholders' equity, end-of-year } & 121,851 \\\hline\end{array}$ - The total asset turnover is: