Exam 5: Using Financial Statement Information

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. What is Justin's 2017 debt to equity ratio?

Which of the following ratios would be of primary importance to a manager in evaluating the success of a new policy of reducing the stock of goods needed to meet customer demand?

Book value fails to reflect true value primarily because:

How might a company overstate performance? Why might this occur?

Buchanan Company has the following financial data on December 31, 2017 and 2016: 12/31/16 12/31/17 Cash \ 16,000 \ 21,000 Accounts receivable 12,000 4,000 Inventory 15,000 12,000 Net plant and equipment 5,000 3,000 Current liabilities 8,000 18,000 Common stock 5,000 5,000 Retained earnings 31,000 2,000 Buchanan 's 2017 income statement reported Revenue \ 160,000 Cost of goods sold 150,000 Gross margin \ 10,000 Depreciation expense 2,000 Net income \ 8,000 Buchanan's 2017 data from its statement of cash flows: Cash flow from operations \ 42,000 Cash flow from investing activities 0 Cash flow from financing activities, (all dividends paid) (22,000) Required: Using appropriate ratios, comment on the change in Buchanan's solvency position and assess the probable cause of the change from 2016 to 2017.

Financial flexibility is

Operating performance is a company's ability to

An analyst assessed a company and determined the company reported a "high quality of earnings." This implies that

The price-earnings ratio is

Use the information that follows taken from Campbell Company's financial statements for the years ending December 31, 2017 and 2016. Balance Sheet Information 2017 2016 Assets Cash \ 25 \ 50 Accounts receivable 60 70 Inventory 40 30 Land, building, and equipment Total Assets \ \ Liabilities and Shareholders' Equity Accounts payable \ 85 \ 100 Long term note payable 180 200 Common stock 150 150 Retained earnings Total Liabilities \& Shareholders' Equity $\begin{array}{lr}\text { Income Statement Information }\\\text { Sales (all sales are on credit) } & \$ 850 \\\text { Cost of goods sold } & \underline{425} \\\text { Gross profit } & {425}\\\text { Operating expenses } & \underline{ 440} \\\text { Net income } &\$(15) \end{array}$ Calculate Campbell's return on equity and return on assets for the year ended December 31, 2017. Assume that the income tax rate is 30%. Also assume that in Campbell's industry, the industry average return on equity is 19% and the average return on assets is 11%.

Norton Company has the following assets on January 1, 2017 and January 1, 2016. 1/1/17 1/1/16 Cash \ 430,000 \ 370,000 Accounts receivables ? 333,000 Marketable securities 186,000 130,000 Irventory 220,000 ? Net plant and equipment 120,000 129,000 If Norton's quick ratio is 2.50 for 2017 and its current liabilities are $500,000, what is the amount of its accounts receivables?

What must an analyst learn first when assessing a particular business environment?

What type of audit report do most companies receive from their auditors?

Identify two forms of analyzing financial statements at a particular point in time. Which of these forms is subject to great variation among different analysts?

Which of the following ratios would be of primary importance to a supplier in deciding to extend credit for goods delivered?

A company would likely "take a bath"

Use the information that follows taken from Campbell Company's financial statements for the years ending December 31, 2017 and 2016. Balance Sheet Information 2017 2016 Assets Cash \ 25 \ 50 Accounts receivable 60 70 Inventory 40 30 Land, building, and equipment Total Assets \ \ Liabilities and Shareholders' Equity Accounts payable \ 85 \ 100 Long term note payable 180 200 Common stock 150 150 Retained earnings Total Liabilities \& Shareholders' Equity $\begin{array}{lr}\text { Income Statement Information }\\\text { Sales (all sales are on credit) } & \$ 850 \\\text { Cost of goods sold } & \underline{425} \\\text { Gross profit } & {425}\\\text { Operating expenses } & \underline{ 440} \\\text { Net income } &\$(15) \end{array}$ Calculate Campbell's inventory turnover ratio and accounts receivable turnover ratio for the year ended 2017. Further, assume that in Campbell's industry, the industry average inventory turnover ratio is 12 and the industry average receivables turnover ratio is 14.

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 return on equity of 22%, determine if in 2017, Carter is more or less profitable than the average firm in its industry.

Harrison Company has common stock of $50,000 and retained earnings of $40,000 at yearend. During the year, 10,000 shares of stock were outstanding. Net income was reported as $6,000. A. Calculate earnings per share. B. How does earnings per share differ from most of the other ratios with respect to financial statements?

Explain the concept of leverage.