Exam 3 Business

2015: 7.3x more 2014: 8.0x more Industry: 9

P/E trending down, stockholder don't think we're as good as others

Can the company collect its receivables?

balance sheet compare the acct. receivable to the % increase of sales over the past two years.

company worth to shareholders?

book values (total A- total L= book val) review EPS

can the company sell inventory in a timely matter?

calculate DSI/inventory turnover rate (COGS/av. inventory balance)

cash available for expansion?

calculate total current assets from the BS

calculate the Day sales outstanding

can company collect receivables?

DSR

can the company collect its receivables? compare to credit terms.

Gross Profit

can the company make money selling its products?

DSI

can the company sell its products? compare to industry averages.

Which of the following is not a way to accurately determine the financial performance of a company?

carefully examine one years financial results

where is company's cash coming from? where is it being used?

cash flow statement and operating activities

If receivables are growing faster than sales

collections may be too slow, and a cash shortage may result

Can the company pay its current liabilities?

compare current assets to current liabilities.

Can the company pay its current and long term liabilities?

compare total assets and total liabilities.

Liquidity

current liabilities, cash available

current assets/current liabilities

current ratio

Which of the following items is a measure of a company's ability to collect receivables?

days sales in receivables

<2 is good for

debt to equity ratio

a high current ratio

does not mean that current liabilities are greater than assets

is the company profitable on its product sales?

gross profit %? increasing or decreasing over the past 3 years?

company is profitable at selling their products?

gross profit margin

current ratio

is good to be over 1

valuation

is the company a good investment?

a high current ratio

is usually more than 2

type of ratio that tells if theres too much debt?

leverage

leverage ratio

long term liabilities, debt

most favorable ratio

lower (ex. 1.6 is better vs 5.8)

type of ratio that tells if theres issues selling inventory?

operational

In a vertical analysis of the income statement, each line item is shown as a

percentage of the net sales

declining gross margin, sales, operating net/income

red flags

vertical analysis

reporting an amount on a financial statement as a percentage of another year on the same financial statement

are sales growing or falling? What is the trend for the last three years?

review sales revenue on the income statement

Can the company sell its products?

review sales revenue on the income statement.

Zach's company had a sales increase of 15%. inventory and A/R both declined.

sales, inventory, and A/R should move in the same direction - investigate further.

A high turnover ratio means:

shows the company does not overspend by buying too much inventory and wastes resources by storing non-salable inventory. It also shows that the company can effectively sell the inventory it buys.

when the EPS is going up

that is good for common shareholder

a high current ratio means

the company may not be using its current assets or its short-term financing facilities efficiently

A higher P/E ratio means that:

the stock is relatively expensive. more confidence.

operational

turnover ratio, profitability ratio,

comparing financial results from period to period v

vertical, horizontal, and trend analysis

compare financial results to different operating periods?

vertical, horizontal, and trend analysis.

average accts. receivable collection term

30 day

outstanding accts. receivable collection term

45 days

industry average days in inventory

60 days

company's average days in inventory

90 days

The cost of goods sold as a percentage of net sales revenue is ________.

COGS/Net Sales Revenue