Accounting Chapter 17
When interpreting measures from financial statement analysis, we need _____________ for comparisons.
standards
The debt-to-equity ratio is computed by taking:
total liabilities divided by total equity
Data visualizations reveal:
trends not easily seen by looking at numbers insights not easily seen by looking at numbers
True or false: Return on total assets reflects solvency. It is computed by taking net income divided by current assets for the period.
False
Days' sales uncollected is computed by taking ____________, net divided by net sales multiplied by 365.
accounts receivable
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
A company has Total Assets of $135,000 including $29,000 in Accounts Receivable, and Net Sales of $380,000. Days' sales uncollected is ____ days.
27.9
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
A company's market price is $60.00 per common share, book value is $10.00 per share, and the earnings is $5.00 per share. Compute price-earnings ratio.
12
A company's market price is $40.00 per common share, book value is $10.00 per share, and the earnings is $3.00 per share. Compute price-earnings ratio.
13.3
_____________ - __________ financial statements express each item as a percent of a base amount. The base amount is assigned a value of 100%.
Common size
________________ financial statements show financial amounts in side-by-side columns on a single statement.
Comparative
__________________________ is a useful measure in evaluating inventory liquidity. It is computed by taking ending inventory divided by cost of goods sold multiplied by 365.
Days' sales in inventory
_________________ 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 sales and then multiplying by 365.
Days' sales uncollected
Identify which of the following sections are part of the six sections that make up a financial statement analysis report.
Executive summary Key factors Assumptions
__________________ users of accounting information rely on financial statement analysis to make more informed decisions when pursuing their goals.
External
_______________ refers to the availability of resources to pay short-term cash requirements. Analysis is aimed at a company's funding requirements.
Liquidity
Identify which of the following specific areas are considered the building blocks of financial statement analysis.
Market prospects Solvency Profitability Liquidity and efficiency
_____________ 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.
Profit
______________ 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
________________ refers to a company's ability to generate an adequate return.
Profitability
Which of the following areas and not considered to be one of the building blocks of financial statement analysis?
Ratio analysis
___________ are widely used tools of financial analysis that can help us uncover conditions are trends difficult to detect by inspecting individual amounts.
Ratios
_____________ 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
__________________ refers to a company's ability to meet long-term obligations and generate future revenues.
Solvency
Most users rely on general-purpose financial statements, which include which of the following?
Statement of stockholders' equity Income statement Statement of cash flows Notes to financial statement Balance sheet
____________ analysis is a form of horizontal analysis that can reveal patterns in data across periods by comparing period amounts by base period amounts.
Trend
A financial statement ____________ report consists of an executive summary, analysis overview, evidential matter, assumptions, key factors, and interferences.
analysis
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
Working capital can be computed by taking current _____________ minus current _____________.
assets liabilities
Vertical analysis is also called ___________ - __________ analysis.
common size
Days' sales in inventory is computed by taking ending inventory divided by ______________ multiplied by 365.
cost goods sold
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 ________________ 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
The ______________ ratio is a measure of solvency that takes total liabilities divided by total equity.
debt-to-equity
Trend percent is computed by taking the (analysis period amount ______________) x 100.
divided by the base period
The price-earnings ratio is computed by taking market price per common share divided by:
earnings per share
Days' sales in inventory is computed by taking ___________ divided by cost of goods sold multiplied by 365.
ending inventory
The debt-to-equity ratio takes total liabilities divided by total ______________.
equity
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 sales and then multiplying by 365.
frequently
Days' sales uncollected is a measure of how _____________ a company collects receivables computed by dividing the current balance of receivables by the annual credit sales and then multiplying by 365.
frequently
The purpose of financial statement analysis for _________________ users is to provide information to improve efficiency and effectiveness.
internal
All of the following are standards used in financial statement analysis for comparisons:
intracompany industry competitor
The length of time that a company holds inventory prior to selling it is called the
inventory turnover
The measure of how long a company holds inventory before selling it is called the ______________ _______________.
inventory turnover
Visualizations are use to identify:
investing activities sources of financing
The debt-to-equity ratio is a measure of solvency that takes total _____________ divided by total equity.
liabilities
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 ______________ measure.
liquidity
Days' sale in inventory is a useful measure evaluating inventory ______________. It is computed by taking ending inventory divided by cost of goods sold multiplied by 365.
liquidity
The price-earnings ratio is computed by taking:
market price per common share divided by earnings per share
Profit margin is computed by taking:
net income divided by net sales
The ______________ ratio is computed by taking market price per common share divided by earnings per share.
price-earnings
The ________________ ratio measures a company's market expectations for future growth.
price-earnings
A ____________ 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
A measurement of key relations between financial statement items is called ______________ analysis.
ratio
Three common tools of financial statement analysis include:
ratio analysis vertical analysis horizontal analysis
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.
receivable
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 _______________ and for balance sheet accounts, the base is usually total ___________.
revenue assets
Days' sales uncollected is computed by taking accounts receivable, net divided by net ________ multiplied by 365.
sales
Profit margin is computed by taking net income divided by net ________.
sales
Comparative financial statements show financial information in __________ columns.
side-by-side
The amount of current assets minus current liabilities is called _______________ ___________.
working capital