Exam 5: Using Financial Statement Information

Earnings per share

Which one of the following is a step used in assessing whether or not to invest in a particular company?

Use the information that follows taken from Carter Company's financial statements for the years ending December 31, 2017 and 2016. Balance Sheet Information 2017 2016 Assets Cash \ 70 \ 80 Accounts receivable 40 40 Inventory 40 60 Land, building, and equipment Total Assets \ \ Liabilities and Shareholders' Equity Accounts payable \ 95 \ 245 Common stock 210 210 Retained earnings 135 35 Total Liabilities \& Shareholders' Equity $\begin{array}{lr}\text { Income Statement Information }\\\text { Sales (all sales are on credit) } & \$ 900 \\\text { Cost of goods sold } & \underline{300} \\\text { Gross profit } & {\$600}\\\text { Operating expenses } & \underline{ 500} \\\text { Net income } & \underline{ \$(100)} \end{array}$ If the industry in which Carter is a member has an average accounts receivable turnover of 27 times, determine if in 2017, Carter is more or less efficient at converting sales to cash than the average firm in its industry. Assume all sales were credit sales.

Assume that the following financial ratios were computed from the 2017 financial statements of Florida Industries: Return on sales (profit margin) 0.30 Return an assets 0.16 Common equity leverage 0.87 Capital structure leverage 2.22 Asset turnover 1.69 What was the return on equity for Florida in 2017?

Use the information that follows taken from Carter Company's financial statements for the years ending December 31, 2017 and 2016. Balance Sheet Information 2017 2016 Assets Cash \ 70 \ 80 Accounts receivable 40 40 Inventory 40 60 Land, building, and equipment Total Assets \ \ Liabilities and Shareholders' Equity Accounts payable \ 95 \ 245 Common stock 210 210 Retained earnings 135 35 Total Liabilities \& Shareholders' Equity $\begin{array}{lr}\text { Income Statement Information }\\\text { Sales (all sales are on credit) } & \$ 900 \\\text { Cost of goods sold } & \underline{300} \\\text { Gross profit } & {\$600}\\\text { Operating expenses } & \underline{ 500} \\\text { Net income } & \underline{ \$(100)} \end{array}$ The industry in which Carter is a member has an average return on assets of 18%. Carter reported no interest expense during 2017. Determine if Carter is more or less profitable in 2017 than the average firm in its industry.

Common-size financial statements are based on

How does operating performance differ from financial flexibility?

Which of the following ratios might a potential investor use to determine if the return to shareholders is a large portion of the total return generated by a company?

Pasky Company has the following financial data on January 1, 2017 and January 1, 2016. 1/1/17 1/1/16 Cash \ 35,000 \ 71,000 Accounts receivable 69,000 33,000 Marketable securities 9,000 30,000 Inventary 87,000 105,000 Net plant and equipment 120,000 96,000 Current liabilities \ 42,000 \ 71,000 Lang-term debt 147,000 90,000 Sharehalders' equity 131,000 174,000 In terms of the quick and current ratio, which of the following statements is true?

Comment on the following news headline: "Van Buren, Inc. Takes a Bath in Current Year."

Which of the following is a fundamental way in which financial accounting numbers are useful?

Briefly describe the solvency and profitability of a company with a quick ratio of 3.50 and return on equity of 0.50.

The current ratio is

Why are not all companies audited by certified public accountants?

Return on equity compares

How does off-balance-sheet financing make a company appear less risky?

Assume that the following financial ratios were computed from the 2017 financial statements of Florida Industries: Return on sales (profit margin) 0.29 Return on assets 0.17 Common equity leverage 0.87 Capital structure leverage 2.22 Asset turnover 1.69 If Florida holds its other ratios constant in 2018, but increases its capital structure leverage ratio to 3.20, what will be the 2018 return on equity?

Financial statements help present and potential investors, creditors, and other users in assessing the amount, timing, and uncertainty of

Justin Company has total assets, liabilities, and shareholders' equity of $38,000, $17,000, and $21,000, respectively, at the beginning of 2017. At the end of 2017, total assets, liabilities, and shareholders' equity were reported at $32,000, $13,000, and $19,000, respectively. How much additional debt can Justin Company incur and still have its debt/equity ratio remain less than or equal to 1.00?