Chapter 17 Smart book

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

False

True or false: Small dollar changes can yield large percent changes consistent with their importance.

False

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

Liquidity

Most users rely on general-purpose financial statements, which include which of the following? (Check all that apply.)

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

______ 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

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

Ratio analysis

_________ 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

Identify which of the following specific areas are considered the building blocks of financial statement analysis. (Check all that apply.)

Solvency Profitability Market prospects Liquidity and efficiency

_____ analysis is a form of horizontal analysis that can reveal patterns in data across periods. It is computed by taking the (analysis period amount/base period amount) x 100.

Trend

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

A comparison of a company's financial condition and performance across time is called _______ analysis.

horizontal

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

industry competitor intracompany

Data visualizations reveal: (Check all that apply).

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

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

inventory turnover

Visualizations are use to identify: (Check all that apply).

investing activities sources of financing

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

price-earnings

A(n) _____ 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

Comparative financial statements show financial information in _____ columns.

side-by-side

Analysts typically use computation of dollar changes and percent changes because:

sometimes dollar changes are small, but percents are large

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

Blank 1: Common Blank 2: Size

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

Blank 1: Comparative

(Internal/External) _____ users of accounting information rely on financial statement analysis to make more informed decisions when pursuing their goals.

Blank 1: External

______ 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.

Blank 1: Profit

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

Blank 1: assets Blank 2: liabilities

Vertical analysis is also called ______-______ analysis.

Blank 1: common Blank 2: size

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

Blank 1: current

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 (or net) sales and then multiplying by 365.

Blank 1: frequently

Most users rely on ______ _______ financial statements, which include the (1) income statement, (2) balance sheet, (3) statement of stockholders' equity, (4) statement of cash flows, and (5) notes to these statements.

Blank 1: general Blank 2: purpose

The purpose of financial statement analysis for _____ (internal/external) users is to provide information to improve efficiency and effectiveness.

Blank 1: internal

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

Blank 1: inventory or merchandise Blank 2: turnover

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(n) _____ (efficiency/liquidity) measure.

Blank 1: liquidity

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

Blank 1: price-earnings or PE

A(n) _____ is used to uncover conditions and trends difficult to see by looking at individual amounts. It can be expressed as a percent, rate, or proportion.

Blank 1: ratio

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.

Blank 1: receivable or receivables

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 _________ (revenue/expenses/net income) and for balance sheet accounts, the base is usually total _______ (assets/liabilities/equity)

Blank 1: revenue Blank 2: assets

(Solvency/efficiency) _____ refers to a company's ability to meet long-term obligations and generate future revenues.

Blank 1: solvency

When interpreting measures from financial statement analysis, we need ______ (or benchmarks) for comparisons.

Blank 1: standards

A comparison of a company's financial condition and performance to a base amount, such as total assets, is called _____ (horizontal/vertical) analysis.

Blank 1: vertical

The amount of current assets minus current liabilities is called _____ ______.

Blank 1: working Blank 2: capital

________ 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 (or net) sales and then multiplying by 365.

Days' sales uncollected

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

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

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

divided by the base period