ACC CH 13 Smart Book

Blushing Co. had Total Assets of $105,000, which included Cash of $30,000, Accounts Receivable of $15,000 Merchandise Inventory of $60,000. Blushing also had Total liabilities of $95,000, which included Current Liabilities of $60,000. Blushing's acid-test ratio equals:

0.75

Comparing amounts for two or more successive periods often helps in analyzing financial statements. ___________ financial statements facilitate this comparison by showing financial amounts in side-byside columns on a single statement.

Comparative

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

Current

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

Market Prospects Solvency Liquidity and efficiency Profitability

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

analysis amount/base amount

The dividend yield is computed by taking:

annual cash dividends per share divided by market price per share

Return on common stockholders' equity is computed by taking is computed by taking (net income less preferred dividends) divided by:

average common stockholders' equity

The formula for dollar change for financial statement analysis is computed by taking the analysis period amount minus

base period amount

To compute the percent change, divide the {analysis period amount- base period amount) by __ _ x100.

base period amount

The formula for the acid-test ratio is computed as

cash+short-term investments+current receivables/current liabilities

______________ income statements express each item as a percent of a base amount. The base amount is assigned a value of 100%

common-size

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

Working capital can be computed by taking ________ - _________

current assets - current liabilities

Managements__________________ and ____________________ begins with an overview, followed by critical accounting policies, and a discussion of operating results and financial condition. It is an excellent starting point in understanding a company's business activities

discussion;analysis

An investor in Kora, Inc. is interested in how productive Kora is in using its assets. This is known as a(n) (efficiency/liquidity) measure.

efficiency

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

ending inventory

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

equity

The times interest earned ratio is computed by ta king income before interest expense and income taxes divided by _______ expense.

interest

The ___________________________ is calculated by dividing the cost of goods sold by the average inventory

inventory turnover

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

liabilities

Days' sales uncollected is a measure of the ________ of receivables computed by dividing the current balance of receivables by the annual credit (or net) sales and then multiplying by 365.

liquidity

Days' sales uncollected is a measure of the __________ of receivables computed by dividing the current balance of receivables by the annual credit (or net) sales and then multiplying by 365.

liquidity

Return on total assets is computed by taking:

net income divided by average total assets

The formula for accounts receivable turnover is computed as __ divided by average accounts receivable, net.

net sales

Profit margin is computed by taking net income divided by _____

net sales.

earnings

per share is reported after discontinued segments

a measurement of key relations between financial statement items is called

ratio analysis

Three common tools of financial statement analysis include: (Check all that apply.)

ratio analysis horizontal analysis Vertical analysis

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)_________

revenue assets

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

sales

(Solvency/efficiency) refers to a company's long-run financial viability and its abillty to cover long-term obligations.

solvency

_______ refers to a company's ability to generate an adequate return on invested capital a. efficiency b. profitability c. liquidity d. solvency

solvency

When interpreting measures from financial statement analysis, we need to decide whether the measures indicate good, bad, or average performance. To make such judgments, we need ___________ (or benchmarks) for comparisons.

standards

`nventory Turnover (Cost of Goods Sold/Average inventory)

the length of time that a company holds inventory prior to selling

The amount of income before deductions for interest expense and income taxes is the amount available to pay interest The _____ ______ ______ ratio takes this income divided by interest expense to determine the risk for creditors.

times interest earned

The comparison of a company's financial condition and performance to a base amount such as total assets, is called

vertical analysis

The price-earnings ratio is computed by taking:

( Market Price / Earnings ) market price per common share divided by earnings per share

A company has 20,000 shares of $5 par-value common stock issued and outstanding. Earnings per share were $4. annual cash dividends per share were $0.90, and market price per share is $90. Dividend yield is

1%

Vito Co. had current assets of $9000 and current liabilities of $6000 at the end of the year. Net income during the year was $21000. The current ratio for the period is

1.5 9000/6000

If cost of goods sold equals $75000; beginning inventory equals $5000 and ending inventory equals $10,000, the inventory turnover is

10 75000/(5000+10000)/2

At the end of the first year, assets for a company are $60,000 and liabilities are $40,000. The debttCH'lquity ratio is

2.

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

Squire Co. had Net Sales of $3000 in 2017 and $3600 in 2018. It had Total Assets of $1000 in 2017 and $1400 in 2018. Total asset turnover would be _______________times in 2018.

3 3600/(1000+1400)/2)=3600/1200

Marsh Co. had beginning inventory of $10,000 and ending inventory of $13,000. Cost of goods sold for the period was $65,000. Days' sales in Inventory is days.

73

________ 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 in Inventory + Ending inventory / Cost of Goods Sold X 365

_______ _______ is used to compare the dividend-paying performance of different investment alternatives. It ls computed by taking annual cash dividends per share divided by market price per share.

Dividend yield

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.

General Purpose

Identify which of the following sections are part of the six sections that make up a good analysis report

Key Factors Executive summary Assumptions

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

Liquidity

Days' sale in inventory is a useful measure in evaluating inventory (efficiency/liquidity) _________. It is computed by taking ending inventory divided by cost of goods sold multiplied by 365.

Liquidity

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

Liquidity

_____ 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 Statement of cash flows' Balance sheet Statement of retained earnings Income statement

___________ratio = market price per common share divided by earnings per share.

Price - earnings ratio

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

Profitability

______ measures the amount of net income earned for its owners. It is computed by taking net income less preferred dividends divided by average common stockholders' equity.

Return on Common Stockholder's Equity

____ reflects operating efficiency. It is computed by taking net income divided by average total assets for the period.

Return on Total Assets

_______ turnover reflects a company's ability to use its assets to generate sales and is an important indication of operating efficiency. It is computed by taking net sales divided by average total assets.

Total asset

The amount of current assets less current liabilities.

Working Capital.

trend percent

[analysis period amount / base period amount] x 100 is a form of horizontal analysis that can reveal patterns in data across successive periods.

Profit

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

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 ________________ turnover ratio.

accounts receivable