Chapter 17 Financial Statement Analysis
Price/Earnings (P/E) Ratio
Market Price per share/EPS on Common Stock
Return on Stockholders' Equity
Net Income / Average Stockholders' Equity
Accounts Receivable Turnover Ratio
Sales / Average Accounts Receivable
Average Daily Sales
Sales/365
A Firm selling food should have a higher inventory turnover rate than a firm selling office furniture. True or False
True
A financial statement showing each item on the statement as a percentage of one key item on the statement is called a common-sized financial statement. True or False
True
The relationship of each asset item as a percent of total assets is and example of vertical analysis. True or False
True
Income statement information for Lucy Company is provided below. Accounts Amount Sales $175,000 Cost of goods sold 105,000 Gross profit $ 70,000 Prepare a vertical analysis of the income statement for Lucy Company.
Your Answer: Sales 100% COGS 60% Gross Profit 40%
inventory turnover formula
cost of goods sold/average inventory
Working capital formula
current assets - current liabilities
Return on Operating Assets
operating income/average operating assets
Quick Ratio Formula
quick assets/current liabilities
Asset Turnover Ratio
sales/average total assets
Ratio of Liabilities to Stockholders' equity
total liabilities/total stockholders equity
Ratio of fixed assets to long-term liabilities
Fixed Assets (net) / Long-Term Liabilities
Return on Total Assets
(Income + Interest Expense )/ Average Total Assets
times interest earned ratio
(income before taxes + interest expense) / interest expense
Return on common stockholders' equity
(net income - preferred dividends) / average common stockholders' equity
Earning per share (EPS) on Common Stock
(net income - preferred dividends) / number of common shares outstanding
The following items are reported on a company's balance sheet: Accounts Amount Cash $230,000 Marketable securities 50,000 Accounts receivable 200,000 Inventory 240,000 Accounts payable 300,000 What is the quick ratio?
1.6
The following information pertains to Diane Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. Use this information to answer the questions that follow. AssetsAccounts Amount Cash and short-term investments $ 30,000 Accounts receivable (net) 20,000 Inventory 15,000 Property, plant, and equipment 185,000 Total assets $250,000 Liabilities and Stockholders' EquityAccounts Amount Current liabilities $ 45,000 Long-term liabilities 70,000 Stockholders' equity—Common 135,000 Total liabilities and stockholders' equity $250,000 Income StatementAccounts Amount Sales $ 85,000 Cost of goods sold 45,000 Gross margin $ 40,000 Operating expenses (15,000) Interest expense (5,000) Net income $ 20,000 Accounts Amount Number of shares of common stock outstanding 6,000 Market price of common stock $20 Total dividends paid $9,000 Cash provided by operations $30,000 Using the data provided for Diane Company, what is the return on total assets?
10%
A 15% change in sales will result in a 15% change in net income. True or False
False
The following information pertains to Diane Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. Use this information to answer the questions that follow. AssetsAccounts Amount Cash and short-term investments $ 30,000 Accounts receivable (net) 20,000 Inventory 15,000 Property, plant, and equipment 185,000 Total assets $250,000 Liabilities Liabilities and Stockholders' EquityAccounts Amount Current liabilities $ 45,000 Long-term liabilities 70,000 Stockholders' equity—Common 135,000 Total liabilities and stockholders' equity $250,000 Income StatementAccounts Amount Sales $ 85,000 Cost of goods sold 45,000 Gross margin $ 40,000 Operating expenses (15,000) Interest expense (5,000) Net income $ 20,000 Accounts Amount Number of shares of common stock outstanding 6,000 Market price of common stock $20 Total dividends paid $9,000 Cash provided by operations $30,000 Using the data provided for Diane Company, what is the return on common stockholders' equity?
14.8%
A company reports the following: Accounts Amount Sales $1,200,000 Average accounts receivable (net) 50,000 What is the number of days' sales in receivables?
15.2
The following items are reported on a company's balance sheet: Accounts Amount Cash $230,000 Marketable securities 50,000 Accounts receivable 200,000 Inventory 240,000 Accounts payable 300,000 What is the current ratio
2.4
Based on the following data for the current year, what is the inventory turnover? sales on account during year 700,000 cost of goods sold during year 270,000 accounts receivable, beginning of year 45,000 accounts receivable, end of year 35,000 Inventory beginning of year 90,000 inventory end of year 110,000
2.7
A company reports the following: Accounts Amount Sales $1,200,000 Average accounts receivable (net) 50,000 What is Accounts Receivable Turnover?
24
Based on the following data for the current year, what is the number of days' sales in receivables? Sales on account during year 584,000 cost of goods sold during year 300,000 accounts receivable, beginning of year 45,000 accounts receivable, end of year 35,000 inventory beginning of year 90,000 inventory, end of year 111,000
25
Assume the folowin Sales data for a company Current year 1,025,000 Preceding year 820,000 What is the percentage increase in sales from the preceding year to the current year?
25%
In horizontal analysis the current year is the basis. True or False
False
Hsu Company reported the following on its income statement: income before taxes 420,000 income tax expense 120,000 net income 300,000 interest expense was 80,000. Hsu Company's times interest earned is
6.25
A company reports the following: Accounts Amount Net income $150,000 Preferred dividends $10,000 Shares of common stock outstanding 20,000 Market price per share of common stock $35 Calculate the company's earnings per share on common stock.
7
number of days' sales in receivables
Average Accounts Receivable / Average Daily Sales (liquidity)
number of days sales in inventory?
Average Inventory / Average Daily Cost of Goods Sold
Average daily COGS
COGS/365
Profitiblity
Company's ability to generate earnings
Solvency
Company's ability to make it's periodic interest payments and to repay the face amount of debt at maturity
Liquidity
Company's ability to turn assets into cash
Current Ratio Formula
Current Ratio = Current Assets / Current Liabilities
Dividends Per Share
Dividends on Common Stock / Shares of Common Stock Outstanding
Dividend Yield
dividend per share of common stock / market price per share of common stock
