Smartbook Chapter 14 Financial statement analysis
A company has cash of $4,000; accounts receivable of $16,000; accounts payable of $5,000; and bonds payable of $12,000. What is the amount of the company's working capital?
$15,000
A company has sales revenue of $100,000; cost of goods sold of $40,000; operating expenses of $30,000; and nonoperating expenses of $5,000. What is the amount of gross profit?
$60,000
A company had sales of $400,000; gross profit of $250,000; operating income of 150,000; and net income of $75,000. Dividends on preferred stock were $10,000. Throughout the year, 10,000 shares of common stock were outstanding and 1,000 shares of preferred stock were outstanding. What was the earnings per share for the year?
$7.50
A company has cash of $4,000; accounts receivable of $8,000; inventory of $12,000; and accounts payable of $15,000. What is the amount of the company's working capital?
$9,000
A company has cash of $5,000; accounts receivable of $25,000; inventories of $35,000; accounts payable of $35,000; and retained earnings of $30,000. What is the company's current ratio, rounded to the nearest hundredth?
1.86
A company had inventory in successive years of $45,000, $52,000, and $65,000. Which sequence represents the correct trend percentages, rounded to the nearest whole percentage, assuming the first year is the base year?
100%, 116%, 144%
A company has total assets of $1.5 million; sales of $4 million; and plant and equipment, net of depreciation, of $300,000. What is the component percentage for plant and equipment?
20%
A company had operating income of $250,000 and net income of $300,000 for a year in which its total stockholders' equity was $800,000 at the beginning of the year and increased to $950,000 from the sale of additional capital stock during the year. What was the amount of the company's return on equity for the year, rounded to the nearest whole percentage?
34%
A company had sales of $10,000 in Year 1 and $13,500 in Year 2. What was the percentage increase?
35%
A company had interest expense of $12,400 during a year. In the previous year, interest expense was $11,800. What was the percentage increase rounded to the nearest 1/10 percent?
5.1%
A company has current assets of $300,000; noncurrent assets of $700,000; current liabilities of $175,000; noncurrent liabilities of $425,000; and stockholders' equity of $400,000. What is the amount of the company's debt ratio?
60%
A company had operating income of $100,000 for the year. Other selected figures from the company's statement of financial position (balance sheet) were beginning plant assets of $40,000; ending plant assets of $45,000; beginning total assets of $120,000; and ending total assets of $150,000. What was the return on assets for the year, rounded to the nearest whole percentage?
74%
A company's current market price is $12 per share. Other items of key information from its financial statements include gross profit of $100,000; net income of $40,000; and earnings per share of $1.50. What is the company's price-earning ratio?
8
A company had operating income of $450,000 and net income of $230,000 for the year. Its beginning total asset balance was $500,000, and its ending total asset balance was $600,000. What was the return on assets for the year, rounded to the nearest whole percentage?
82%
If a company had sales of $500,000; gross profit of $360,000; interest expense of $10,000; and net income of $125,000, the component percentage for interest expense, is .
Blank 1: 2%, .02, 2.00%, 2.0%, or 2
Financial statements that present multiyear information in side-by-side columns are called (comparative/classified) financial statements.
Blank 1: comparative
Assets that are relatively liquid and are expected to become cash in the relatively near future are called assets.
Blank 1: current
The ability of a company to meet its continuing obligations is referred to as .
Blank 1: liquidity
Judging the impact on earnings of the specific accounting methods a company chooses is sometimes referred to as the of earnings.
Blank 1: quality
The figure resulting from the division of net income by the number of shares of common stock outstanding is called .
Earnings per share
True or false: Annual reports of companies are made available only to that company's creditors and stockholders.
False
Which of the following do(es) NOT accurately describe the price-earnings ratio?
It reflects a company's liquidity. It reflects a company's rate of inventory turnover.
Which of the following is/are correct about the debt ratio?
The lower the debt ratio, the safer the position of creditors. Debt ratios of companies vary by industry.
Which of the following is/are correct about the annual reports of companies?
They often include multiyear summaries of comparative information about the company. They include management's own discussion and analysis of important aspects of the company.
Which of the following is NOT a goal of financial accounting information?
To demonstrate a company's compliance with income tax law.
The basis or denominator for calculating a trend percentage is
a base-year amount.
A statement of financial position, or balance sheet, that groups similar items together is called
a classified statement.
Which of the following is/are included in calculating the quick ratio?
accounts payable cash accounts receivable
Ratios are used for which of the following purposes?
assisting in understanding the relationship of one financial statement to anther explaining the relative size of related items
The base number (denominator) in the calculation of the return on assets is the
average total assets.
Which of the following is NOT a current asset?
buildings
Consolidated financial statements present which of the following?
combined financial statements of parent and subsidiary companies
Standards of comparison commonly used in financial analysis include all of the following except
comparisons with other companies in close geographic proximity.
The percentage that inventory represents of the total assets in a statement of financial position (balance sheet) is called the
component percentage.
A widely used measure of liquidity that includes all current assets is referred to as the ratio.
current
Which of the following is NOT a section you would find in a classified income statement?
current assets
The price-earnings ratio is calculated by dividing the current market price by
earnings per share.
Ratios are used for which of the following purposes?
explaining the relative size of related items assisting in understanding the relationship of one financial statement to anther
The difference between net sales and the cost of goods sold is called
gross profit.
Comparing amounts for a company over time in successive accounting periods is called
horizontal analysis.
Comparing amounts for a company with other companies that have similar characteristics is called
industry analysis.
The most common approaches used for financial analysis compare information about a company in a single accounting period with
information about other companies in the same industry. information about the same company in different accounting periods.
Examples of current assets include which of the following?
inventories accounts receivable cash
A company's ability to meet its obligations on an ongoing basis is generally referred to as the company's
liquidity.
The general formula for calculating earnings per share is
net income divided by the number of shares of common stock outstanding.
The best number to use for the numerator in the calculation of return on equity is
net income.
The subtotal that follows operating expenses in a multiple-step income statement is called
operating income.
Gross profit minus operating expenses is called
operating profit.
Classified financial statements are statements that
place items with certain characteristics together in the statements.
Which of the following are NOT considered in calculating the amount of a company's working capital?
retained earnings bonds payable capital stock
The calculation of the current ratio includes all of the following in the numerator except
retained earnings. equipment.
The return on investment is calculated as follows:
return divided by average amount invested during the period
Two common applications of the Return on investment concept include:
return on equity return on assets
The basis or denominator for computing a percentage change from Year 1 to Year 2 is
the Year 1 amount.
Measures of profitability include all of the following except
the current ratio.
Which of the following is NOT a factor in judging a company's liquidity?
the depreciation of plant assets
A company had gross profit of $500,000; operating income of $200,000; and net income of $100,000 during the year. Its statement of financial position (balance sheet) shows that its stockholders' equity began the year at $1 million and during the year was reduced to $950,000 by the purchase of treasury stock. What was the return on equity for the year, rounded to the nearest whole percentage?
10%
A company had sales of $90,000 in Year 1, the base year; $95,000 in Year 2; and $78,000 in Year 3. What is the trend percentage for Year 3? Round the answer to two decimal places?
86.7%
A company has cash of $20,000; accounts receivable of $45,000; inventory of $60,000; plant assets (net of depreciation) of $100,000; and accounts payable of $55,000. The amount of the company's working capital is $
Blank 1: 70,000
The return on is a broad measure of profitability of a company based on the total investment in the company.
Blank 1: assets
The balance sheet ratio that measures liquidity by excluding inventory as an asset is called the ratio.
Blank 1: quick
The relationship of one number to another related number is called a .
Blank 1: ratio
Taking steps to artificially or temporarily improve the appearance of a company's financial statements is referred to as .
Blank 1: window Blank 2: dressing
True or false: Calculating a percentage change starts with the second year and works backward to the first year.
False
True or false: Ratios compare only amounts within a single financial statement, such as an income statement or a statement of financial position (balance sheet).
False
True or false: The quick ratio and the current ratio are two names for the same financial statement ratio.
False
True or false: Public opinion polls show that people generally overstate the amount of profit earned by companies.
True
Quality of earnings is a term used to describe
the impact on earnings and assets of the accounting methods selected by a company.
