Exam 10: Analysis and Interpretation of Financial Statements

If a firm drops its price to attract customers and gain a greater market share:

Choose the correct definition for liquidity.

If inventory turnover is slowing down,which of the following is not likely to be a factor?

The solvency test:

Choose the correct definition for long-term viability.

Choose the correct explanation for the liquidity (quick)ratio.

Return on equity:

A price/earnings ratio above the industry average indicates that:

Choose the correct explanation for the current ratio.

The lower the debt ratio:

If accounts receivable (debtors)turnover is speeding up,which of the following is not likely to be a factor?

Choose the correct definition for financial stability.

The following financial statements are for Rupert's Appliances,a sole trader,for the years ending 31 March 20X3,20X4 and 20X5. continues over page a Calculate the following ratios for the 20X5 year only.Show your calculations. i Gross profit %,Net profit %,Return on equity % ii Inventory turnover (times per year),Inventory turnover (days) iii Accounts receivable turnover (times per year),Accounts receivable turnover (days) iv Current ratio,Liquidity ratio,Equity ratio %. b Comment on the ratios calculated above,and the financial statement results for Rupert's Appliances during the years 20X3-20X5 inclusive,in the following areas: • profitability • managerial performance • financial stability. c Recommend to Rupert what you consider to be the 6 most important things to do to correct his financial position and performance.

Choose the correct statement: the debt ratio:

Choose the correct definition for solvency.

The following financial statements are for Sioux Appliances,a sole trader,for the years ending 31 March 20X3,20X4 and 20X5. continues over page Other information: 20X2 Accounts receivable were 52,000 20X2 Inventory were 19,000 20X2 Total assets were 360,000 20X2 Sales were 490,000 The bank overdraft limit is $20,000. The mortgage is due for repayment in 20X7. a Give a brief explanation of what each of the following ratios measure or mean: (You are not required to interpret the results from the financial statements at this point. ) i Net profit %,Return on equity % ii Inventory turnover (days),Accounts receivable turnover (days) iii Liquidity ratio (= Quick ratio),Debt ratio %. b Calculate the following ratios for the 20X5 year.Show your calculations. i Gross profit %,Net profit %,Return on equity % ii Inventory turnover,in times per year and in days iii Accounts receivable turnover,in times per year and in days iv Current ratio,Liquidity ratio,Debt ratio %. c Comment on the ratios calculated above,and the financial statement results for Sioux Appliances during the years 20X3-20X5 inclusive,in the following areas: • profitability • managerial performance • financial stability. d Recommend to Sioux what you consider to be the 6 most important things to do to correct her financial position and performance.

If both gross profit margin and net profit margin are increasing: