Accounting Chapter 17

When interpreting measures from financial statement analysis, we need _____________ for comparisons.

standards

The debt-to-equity ratio is computed by taking:

total liabilities divided by total equity

Data visualizations reveal:

trends not easily seen by looking at numbers insights not easily seen by looking at numbers

True or false: Return on total assets reflects solvency. It is computed by taking net income divided by current assets for the period.

False

Days' sales uncollected is computed by taking ____________, net divided by net sales multiplied by 365.

accounts receivable

The ratio that measures how frequently a company converts its account receivables into cash by taking net sales divided by average accounts receivable is known as:

accounts receivable turnover

The ______________ ratio takes the sum of cash, short-term investments, and current receivables and divides the total by current liabilities. It helps determine immediate short-term debt-paying ability.

acid-test

A company has Total Assets of $135,000 including $29,000 in Accounts Receivable, and Net Sales of $380,000. Days' sales uncollected is ____ days.

27.9

A company has Total Assets of $34,000 including $3,000 in Accounts Receivable, and Net Sales of $40,000. Days' sales uncollected is ____ days.

27.4

A company's market price is $60.00 per common share, book value is $10.00 per share, and the earnings is $5.00 per share. Compute price-earnings ratio.

12

A company's market price is $40.00 per common share, book value is $10.00 per share, and the earnings is $3.00 per share. Compute price-earnings ratio.

13.3

_____________ - __________ financial statements express each item as a percent of a base amount. The base amount is assigned a value of 100%.

Common size

________________ financial statements show financial amounts in side-by-side columns on a single statement.

Comparative

__________________________ is a useful measure in evaluating inventory liquidity. It is computed by taking ending inventory divided by cost of goods sold multiplied by 365.

Days' sales in inventory

_________________ is a measure of how frequently a company collects accounts receivables. It is computed by dividing the current balance of receivables by the annual credit sales and then multiplying by 365.

Days' sales uncollected

Identify which of the following sections are part of the six sections that make up a financial statement analysis report.

Executive summary Key factors Assumptions

__________________ users of accounting information rely on financial statement analysis to make more informed decisions when pursuing their goals.

External

_______________ refers to the availability of resources to pay short-term cash requirements. Analysis is aimed at a company's funding requirements.

Liquidity

Identify which of the following specific areas are considered the building blocks of financial statement analysis.

Market prospects Solvency Profitability Liquidity and efficiency

_____________ margin measures a company's ability to earn net income from sales. It is measured by expressing net income as a percent of net sales.

Profit

______________ reflects a company's ability to earn net income from sales. It is measured by expressing net income as a percent of net sales.

Profit margin

_______________ refers to a company's ability to generate an adequate return.

Profitability

________________ refers to a company's ability to generate an adequate return.

Profitability

Which of the following areas and not considered to be one of the building blocks of financial statement analysis?

Ratio analysis

___________ are widely used tools of financial analysis that can help us uncover conditions are trends difficult to detect by inspecting individual amounts.

Ratios

_____________ is computed by taking net income divided by average total assets for the period.

Return on total assets

_____________ refers to a company's ability to meet long-term obligations and generate future revenues.

Solvency

__________________ refers to a company's ability to meet long-term obligations and generate future revenues.

Solvency

Most users rely on general-purpose financial statements, which include which of the following?

Statement of stockholders' equity Income statement Statement of cash flows Notes to financial statement Balance sheet

____________ analysis is a form of horizontal analysis that can reveal patterns in data across periods by comparing period amounts by base period amounts.

Trend

A financial statement ____________ report consists of an executive summary, analysis overview, evidential matter, assumptions, key factors, and interferences.

analysis

To prepare common-size financial statements, each line item needs to be calculated to a common-size percent. The formula for common-size percent is (___________) x 100.

analysis amount/base amount

Working capital can be computed by taking current _____________ minus current _____________.

assets liabilities

Vertical analysis is also called ___________ - __________ analysis.

common size

Days' sales in inventory is computed by taking ending inventory divided by ______________ multiplied by 365.

cost goods sold

The __________ ratio, or current assets divided by current liabilities, is used to evaluate a company's ability to pay its short-term obligations.

current

The ________________ ratio, or current assets divided by current liabilities, is used to evaluate a company's ability to pay its short-term obligations.

current

The acid-test ratio takes the sum of cash, short-term investments, and _____________ and divides the total by current liabilities. It helps determine immediate short-term debt-paying ability.

current receivables

The ______________ ratio is a measure of solvency that takes total liabilities divided by total equity.

debt-to-equity

Trend percent is computed by taking the (analysis period amount ______________) x 100.

divided by the base period

The price-earnings ratio is computed by taking market price per common share divided by:

earnings per share

Days' sales in inventory is computed by taking ___________ divided by cost of goods sold multiplied by 365.

ending inventory

The debt-to-equity ratio takes total liabilities divided by total ______________.

equity

Days' sales uncollected is a measure of how ___________ a company collects accounts receivables computed by dividing the current balance of receivables by the annual credit sales and then multiplying by 365.

frequently

Days' sales uncollected is a measure of how _____________ a company collects receivables computed by dividing the current balance of receivables by the annual credit sales and then multiplying by 365.

frequently

The purpose of financial statement analysis for _________________ users is to provide information to improve efficiency and effectiveness.

internal

All of the following are standards used in financial statement analysis for comparisons:

intracompany industry competitor

The length of time that a company holds inventory prior to selling it is called the

inventory turnover

The measure of how long a company holds inventory before selling it is called the ______________ _______________.

inventory turnover

Visualizations are use to identify:

investing activities sources of financing

The debt-to-equity ratio is a measure of solvency that takes total _____________ divided by total equity.

liabilities

An investor in Able Inc. would like to understand Able's availability of resources to pay its short-term cash requirements. This type of analysis is known as a ______________ measure.

liquidity

Days' sale in inventory is a useful measure evaluating inventory ______________. It is computed by taking ending inventory divided by cost of goods sold multiplied by 365.

liquidity

The price-earnings ratio is computed by taking:

market price per common share divided by earnings per share

Profit margin is computed by taking:

net income divided by net sales

The ______________ ratio is computed by taking market price per common share divided by earnings per share.

price-earnings

The ________________ ratio measures a company's market expectations for future growth.

price-earnings

A ____________ is used to uncover conditions and trends which are difficult to see by looking at individual amounts. It can be expressed as a percent, rate, or proportion.

ratio

A measurement of key relations between financial statement items is called ______________ analysis.

ratio

Three common tools of financial statement analysis include:

ratio analysis vertical analysis horizontal analysis

A potential investor in Denzel Co. would like to measure how frequently Denzel converts its account receivables into cash. The investor takes Denzel's net sales divided by average accounts receivable to determine this information, known as the accounts ____________ turnover ratio.

receivable

Vertical analysis is a tool to evaluate individual financial statement items or a group of items. When analyzing income statement accounts, the base is usually _______________ and for balance sheet accounts, the base is usually total ___________.

revenue assets

Days' sales uncollected is computed by taking accounts receivable, net divided by net ________ multiplied by 365.

sales

Profit margin is computed by taking net income divided by net ________.

sales

Comparative financial statements show financial information in __________ columns.

side-by-side

The amount of current assets minus current liabilities is called _______________ ___________.

working capital