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Exam 14: Financial Statement Analysis Available Online in Connect

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Question 51

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Martin Company reported net income of $15,000 on gross sales of $80,000. The company has average total assets of $135,000, of which $102,000 is property, plant and equipment. What is the company's return on investment? (Round your answer to 1 decimal place.)

A) 18.8%
B) 11.1%
C) 14.7%
D) 12.5%

E) B) and C)
F) None of the above

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Question 52

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All of the following are measures of a company's short-term debt-paying ability except:

A) Current ratio.
B) Earnings per share.
C) Inventory turnover.
D) Average collection period.

E) None of the above
F) A) and D)

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Question 53

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Common methods of financial statement analysis include all of the following except:

Crawford Company's current ratio for Year 2 was 1.42, which was slightly above the current ratio for similar companies in its industry. Crawford's quick ratio for Year 2 was 0.68, which is substantially lower than for similar companies in its industry. What conclusion would you draw based on this information?

Current financial reporting standards assume that users of accounting information:

Benson Company received cash of $5,000,000 by issuing 20-year bonds payable. As a result of this transaction, the company's current ratio will:

Select the term from the list provided that best matches each of the following descriptions or definitions:

Describe the differences between the liquidity ratios, solvency ratios and profitability ratios. Identify examples of each type of ratio as well.

Miller Company reported gross sales of $850,000, sales returns and allowances of $5,000 and sales discounts of $5,000. The company has average total assets of $500,000, of which $250,000 is property, plant, and equipment. What is the company's asset turnover ratio?

Darden Company has cash of $37,000, accounts receivable of $47,000, inventory of $24,500, and equipment of $67,000. Assuming current liabilities of $32,500, this company's working capital is:

As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant issued common stock at par value for $10,000 cash. Which of the following statements is true?

The following balance sheet information was provided by Western Company: Assuming Year 2 net credit sales totaled $126,000, what was the company's average days to collect receivables? (Use 365 days in a year. Do not round your intermediate calculations. Round your answer to 2 decimal places.)

Net income divided by net sales is the formula for which of these analytical measures?

Indicate whether each of the following statements about financial statement analysis is true or false.________ a)Vertical analysis of a company's balance sheet is useful in assessing its liquidity.________ b)Common size financial statements are a form of vertical analysis, but the common size statements for two or more years may usefully be compared.________ c)Vertical analysis of a balance sheet involves converting each component to a percentage of stockholders' equity.________ d)Small percentage changes resulting from vertical analysis may still represent large dollar amounts; therefore, changes in both absolute dollar amounts and percentages should be examined.________ e)A common size income statement is prepared by converting each component to a percentage of net income.

Working capital is current assets minus current liabilities.

Montana Company reported the following operating results for Year 1 and Year 2: Required:Express each income statement component for each year as a percentage of sales. Round your answer to one decimal place (i.e. 22.5%)

As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant paid $250 for transportation-in cost on merchandise it had received. Which of the following statements is not true?

A vertical analysis uses percentages to compare each of the parts of an individual statement to a key statement figure. For example, on an income statement each item would be shown as a percentage of net sales.

Abel Company provided the following information from its financial records: What is the company's earnings per share?

The accounting profession assumes that financial statement users have an expert knowledge of business.