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64 terms

chapter 13

STUDY
PLAY
Financial statement analysis:
A. Is the application of analytical tools to general-purpose financial statements and related data for making business decisions
B. Involves transforming accounting data into useful information for decision-making
C. Helps users to make better decisions
D. Helps to reduce uncertainty in decision-making
E. All of the above
Evaluation of company performance can include comparison and/or assessment of:
A. Past performance
B. Current performance
C. Current financial position
D. Future performance and risk
E. All of the above
External users of financial information:
C. Are not directly involved in operating the company
Internal users of financial information:
B. Are those individuals involved in managing and operating the company
The building blocks of financial statement analysis includes
A. Liquidity and efficiency
B. Solvency
C. Profitability
D. Market prospects
E. All of the above
Financial reporting refers to:
B. The communication of relevant financial information to decision makers
The ability to meet short-term obligations and to efficiently generate revenues is called:
A. Liquidity and efficiency
The ability to generate future revenues and meet long-term obligations is referred to as:
B. Solvency
The ability to provide financial rewards sufficient to attract and retain financing is called:
C. Profitability
The ability to generate positive market expectations is called:
D. Market prospects
Standards for comparisons in financial statement analysis include:
A. Intracompany standards
B. Competitors
C. Industry standards
D. Guidelines (Rules-of-Thumb)
E. All of the above
Intracompany standards for financial statement analysis:
A. Are often based on a company's prior performance
Industry standards for financial statement analysis
C. Are set by the financial performance and condition of the company's industry
Guidelines (rules-of-thumb) are developed from:
B. Past experience
Three of the most common tools of financial analysis are:
C. Horizontal analysis, vertical analysis, ratio analysis
. The comparison of a company's financial condition and performance across time is known as:
A. Horizontal analysis
The measurement of key relations among financial statement items is known as:
D. Ratio analysis
The comparison of a company's financial condition and performance to a base amount is known as:
E. Vertical analysis
A financial statement analysis report usually includes:
A. An executive summary
B. An analysis overview
C. Evidential matter
D. Assumptions
E. All of the above
The background on a company, its industry and its economic setting is usually included in which of the following sections of a financial statement analysis report:
B. Analysis overview
A financial statement analysis report:
A. Enables readers to see the process and rationale of analysis
B. Forces preparers to organize their reasoning and to verify the logic of analysis
C. Serves as a method of communication to users
D. Helps users and preparers to refine conclusions based on evidence from key building blocks
E. All of the above
A complete income statement potentially includes information on
A. Continuing operations
B. Discontinued operations
C. Extraordinary items
D. Changes in accounting principles
E. All of the above
A corporation that makes a change in its accounting principles must report in its financial statements:
A. The cumulative effect of the change on net income of prior periods
B. The effect of the change on earnings per share
C. The nature and justification for the change
D. The effect of the change on net income
E. All of the above
Reporting of discontinued segments includes:
A. Income or loss from operating the discontinued segment net of tax and gain or loss from disposal of the segment's net assets net of tax
Extraordinary items:
C. Are unusual and infrequent
A change in inventory reporting from LIFO to FIFO is:
D. Allowed if it improves the usefulness of information in the financial statements
Which of the following items is not likely to be an extraordinary item?
A. Loss from an unexpected union strike
Financial statements with data for two or more successive accounting periods placed in columns side by side, sometimes with changes shown in dollar amounts and percents, are referred to as:
D. Comparative statements
Horizontal analysis:
A. Is a method used to evaluate changes in financial data across time
Trend analysis is also called:
C. Index number trend analysis
The dollar change for a financial statement item is calculated by:
B. Subtracting the base period amount from the analysis period amount
A company's sales in 2009 were $250,000 and in 2010 were $287,500. Using 2009 as the base year, the sales trend percent for 2010 is:
C. 115%
($287,500/$250,000) x 100 = 115%
In horizontal analysis the percent change is computed by:
D. Subtracting the base period amount from the analysis period amount, dividing the result by the base period amount, then multiplying that amount by 100
To compute trend percents the analyst should:
A. Select a base period, assign each item in the base period statement a weight of 100% and then express financial numbers from other periods as a percent of their base period number
Selected comparative income statement amounts for a company are shown below. Using 2009 as the base year for a horizontal analysis, compute the account with the most significant change.
question 100
A. Sales
Based on the data given below, which of the following statements are true?
E. A percent change either cannot be computed or is not meaningful for cases A, B and C
question 101
Comparative financial statements in which each amount is expressed as a percentage of a base amount are called:
C. Common-size comparative statements
Comparative financial statements in which each amount is expressed as a percentage of a base amount and in which the base amount is expressed as 100%, are called:
B. Common-size comparative statements
Common-size statements:
A. Reveal changes in the relative magnitude of each financial statement item
The common-size percent is computed by:
C. Dividing the analysis amount by the base amount and multiplying the result by 100
A company is preparing a common size balance sheet and wishes the base amount to be the total amount of assets. What are the 2009 and 2010 common-size percents for cash?
C. 8.58% in 2009 and 7.85% in 2010
#106
2009 Common Size Percent = $21,904/$255,376 = 8.58%
Oakley Corporation has the following comparative income statements. Which of the following statements is false with regard to this comparative data?
C. The common-size gross profit percent for 2010 equals (3.87)%
#107
The correct gross profit percent for 2010 = $122,400/$360,000 = 34%
Current assets minus current liabilities is:
D. Working capital
Current assets divided by current liabilities is the:
A. Current ratio
Quick assets divided by current liabilities is the:
A. Acid-test ratio
Net sales divided by average accounts receivable is the:
E. Accounts receivable turnover ratio
Dividing accounts receivable by net sales and multiplying the result by 365 is the:
B. Days' sales uncollected
Dividing ending inventory by cost of goods sold and multiplying the result by 365 is the:
C. Days' sales in inventory
Net sales divided by average total assets is the:
B. Total asset turnover
Net income divided by net sales is the:
B. Profit margin
Net income divided by average total assets is:
C. Return on total assets
Annual cash dividends per share divided by market price per share is the:
D. Dividend yield ratio
The average number of times a company's inventory is sold during an accounting period, calculated by dividing cost of goods sold by the average inventory balance is the:
B. Inventory turnover
A component of operating efficiency and profitability, calculated by expressing net income as a percent of net sales is the:
E. Profit margin ratio
One of several ratios that reflects solvency includes the:
C. Times interest earned ratio
A company had a market price of $37.50 per share, earnings per share of $1.25 and dividends per share of $0.40. Its price-earnings ratio equals:
B. 30.0
$37.50/$1.25 = 30.0
A company had a market price of $83.12 per share, earnings per share of $4.87 and dividends per share of $5.40. Its price-earnings ratio equals:
E. 17.07
$83.12/$4.87 = 17.07
A company had a market price of $8.22 per share, earnings per share of $1.01 and dividends per share of $0.32. Its price-earnings ratio equals:
A. 8.14
$8.22/$1.01 = 8.14
A company had a profit margin of 8%. If net income equaled $40,000 and average total assets equaled $332,500, how much were net sales?
B. $500,000
$40,000/.08 = $500,000
A company had a profit margin of 12%. If net income equaled $450,000 and average total assets equaled $600,500, how much were net sales
E. $3,750,000
$450,000/.12 = $3,750,000
A company had a profit margin of 5%. If net income equaled $83,000 and average total assets equaled $45,000, how much were net sales?
C. $1,660,000
$83,000/.05 = $1,660,000
A company had a profit margin of 8%. If net income equaled $40,000 and average total assets equaled $332,500, how much were net sales?
B. $500,000
$40,000/.08 = $500,000
A company had a return on common stockholders' equity of 22%. Net income equaled $600,000 and average common stockholders' equity equaled $2,500,000. Compute the amount of preferred dividends declared.
A. $50,000
(Net Income - Preferred dividends)/Average common stockholders' equity = 22%
A company had a return on common stockholders' equity of 25%. Net income equaled $200,000 and average common stockholders' equity equaled $700,000. Compute the amount of preferred dividends declared.
D. $25,000
(Net Income - Preferred dividends)/Average common stockholders' equity = 25%