ACCT CH13

Ratio analysis ______.

allows you to evaluate how well a company has performed relative to other different-sized companies within the same industry

o calculate a year-to-year percentage change in any financial statement line item, you should take the ______, then divide by the prior year's amount, and finally multiply the result by 100.

current year's financial statement amount minus the prior year's amount

If a growing company uses an accelerated depreciation method instead of straight-line, it is likely that its ______.

debt-to-assets ratio is higher than if it had used straight-line Reason: Depreciation expense does not affect gross profit because it is below gross profit on the income statement.

___________ analysis analyzes relationships among various items reported in one or more of the financial statements.

ratio

____________ analyses compare amounts for one or more line items to the amount for other line items in the same year to assess a company's profitability, and solvency.

ratio

Calculating the proportion of each individual asset balance sheet to total assets is an example of ______ analysis.

vertical

______ analysis identifies the relative contribution made by each financial statement line item.

vertical

__________ analysis compares each line item to a some amount, such as total assets or total revenue, on the same financial statement.

vertical

Inventors, Inc. had Cost of Goods Sold of $1,800,000 for the year. Inventory was $280,000 at the beginning of the year and $320,000 at the end. Inventors' inventory turnover equals ______ times.

6.00

On-a-Roll Bakery has $20,000 in current liabilities, $100,000 in long-term liabilities, and $80,000 in stockholders' equity at December 31. Its debt-to-assets ratio equals ______.

60% Reason: Assets=liabilities plus stockholders' equity or ($20,000+$100,000)+$80,000=$200,000; Debt-to-assets ratio=($20,000+$100,000)/$200,000=60%

What effect would increasing the sales price of a company's products most likely have on the gross profit percentage?

It would increase it.

Which ratios measure a company's ability to survive in the short term by converting assets to cash that can be used to pay current liabilities as they come due?

Liquidity ratios which include receivables and inventory turnover and current ratios

Which of the 2 profitability ratios come right from the common size income statement?

Net profit margin Gross profit percentage

Which of these are profitability ratios?

Price/earnings ratio Net profit margin Gross profit percentage

Sony, Inc. uses an accelerated depreciation method while GE, Inc. uses straight-line depreciation. Which of the following is more likely to be true, if both companies invest $400 million this year in new equipment?

Sony, Inc. may show a lower times interest earned because its net income may be lower due to higher depreciation expense. (Reason: Depreciation expense does not affect receivables turnover (=sales divided by average accounts receivable).)

GPS, Inc. had Sales of $500,000, Net Income of $40,000, and Net Cash from Operating Activities of $60,000 during the year. At December 31, its average common stockholders' equity was $200,000, and its average common shares outstanding was 50,000 shares and no preferred stock. Its earnings per share equals ______.

$0.80 (Reason: Earnings per share = $40,000/50,000 = $0.80)

Stockup, Inc. has a P/E ratio of 20 and a stock price of $50. What is Stockup's earnings per share?

$2.50

If Makers, Inc.'s debt-to-assets ratio is 65%, its current liabilities are $50,000 and its long-term liabilities are $80,000, then its total assets equals ______.

$200,000 Reason: 65%=($50,000+80,000)/x. Solve for x

PLZ, Inc., had Net income of $100,000 during 2020. PLZ's stock price was $80 and its P/E ratio was 25 at December 31, 2020.There no preferred stock. What was PLZ's earnings per share at December 31, 2020?

$3.20

Gross profit percentage equals ______.

((Net Sales - Cost of Goods Sold)/Net Sales) x 100

Analysts may want to compare Dell, Inc.'s ratio analysis results with ______.

-benchmarks, such as prior-years' results -benchmarks, such as the averages for others in the computer industry

Ratio analysis is useful for ______.

-comparing a company's performance with itself over time -evaluating a company's performance given the level of its other resources -comparing two companies of different size in the same industry

The inventory turnover ratio equals ______.

Cost of Goods Sold divided by Average Inventory

Which of the following would directly improve the net profit margin?

Decrease in expenses relative to sales Increase in sales relative to expenses

Which of the following would directly cause a drop in the net profit margin?

Decrease in sales relative to expenses

Which of the 2 profitability ratios come right from the common size income statement?

Gross profit percentage Net profit margin

______ analysis is a technique that expresses each financial statement amount as a percentage of another amount on the same financial statement.

Vertical

Ratio analyses must be ______.

compared to benchmarks, such as prior-years' results and industry averages, to properly interpret the results.

Financial statement analysis is useful for ______.

evaluating a company's success in meeting challenges

Often loan agreements require the borrower to comply with certain requirements, such as maintaining a particular current ratio or limiting future borrowing. To decide if a company has complied with its loan agreements, you should look at its ______.

financial statements

Receivables turnover, inventory turnover, and the current ratios all measure ____________.

liquidity

Receivables turnover, inventory turnover, and the current ratios all measure ______________.

liquidity

________________ analysis compares individual financial statement line items from one period to the next.

horizontal

The ______ ___________ margin equals Net Income divided by Revenues times 100%.

net profit

Net Income divided by Revenues is the ______.

net profit margin

The price of a single share of stock divided by earnings per share is ______.

the P/E ratio

Current assets divided by current liabilities equals ______.

the current ratio a liquidity ratio

When using financial ratios to analyze companies, it is important to take into consideration ______.

the different accounting methods used whether U.S. GAAP or IFRS is followed

To calculate a year-to-year percentage change in any financial statement line item such as sales, you should take the current year's amount, subtract the prior year's amount, then divide by ______, and finally multiply the result by 100.

the prior year's amount