Exam 2: Introduction to Financial Statement Analysis

The International Financial Reporting Standards set out by the International Accounting Standards Board are NOT accepted by the exchanges in which of the following countries or regions?

Use the table for the question(s) below. Balance Sheet Assets Liabilities Current Assets Cash 50 Accounts receivable 22 Inventories 17 Total current assets 89 Current Liabilities Accounts payable 42 Notes pavable/short-term debt 7 Total current liabilities 49 Long-Term Assets Net property, plant, and equipment 121 Total long-term assets 121 Total Assets 210 Long-Term Liabilities Long-term debt 128 Total long-term liabilities 128 Total Liabilities Shareholders' Equity 33 Total Liabilities and 210 Shareholders' Equity -The above diagram shows a balance sheet for a certain company. All quantities shown are in millions of dollars. If the company has 4 million shares outstanding, and these shares are trading at a price of $8.24 per share, what does this tell you about how investors view this firm's book value?

Use the table for the question(s) below. $\text { AOS Industries Statement of Cash Flows for } 2012$ Operating activities Net Income 3.2 Depreciation and amortisation 1.4 Cash effect of changes in Accounts receivable 2.1 Accounts payable 1.1 Inventory 0.8 Cash from operating activities 2.8 Investment activities Capital expenditures 2.2 Acquisitions and other investing activity -0.4 h from investing activities 2.6 Financing activities Dividends paid -1.5 Sale or purchase of stock 2.1 Increase in short-term borrowing 1.4 Increase in long-term borrowing 3.2 Cash from financing activities 5.2 Change in Cash and Cash Equivalents -Consider the above statement of cash flows. If all amounts shown above are in millions of dollars, what were AOS Industries' retained earnings for 2012?

A software company acquires a smaller company in order to acquire the patents that it holds. Where will the cost of this acquisition be recorded on the statement of cash flows?

The notes to the financial statements would be LEAST likely to be used for which of the following purposes?

One way Enron manipulated its financial statements was to sell assets at inflated prices to other firms, while promising to buy back those assets at a later date. The incoming cash was recorded as revenue, but the promise to buy back the assets was not disclosed. Which of the following is one of the ways that such a transaction is deceptive?

Use the table for the question(s) below. Luther Corporation Consolidated Income Statement Year ended June 30 (in \ millions) 2012 2011 Total sales 610.1 578.3 Cost of sales (500.2) (481.9) Gross profit 109.9 96.4 Selling, general, and administrative expenses (40.5) (39.0) Research and development (24.6) (22.8) Depreciation and amortisation (3.6) (3.3) Operating income 41.2 31.3 Other income --- -- Earnings before interest and taxes (EBIT) 41.2 31.3 Interest income (expense) (25.1) (15.8) Pretax income 16.1 15.5 Taxes (5.5) (5.3) Net income 10.6 10.2 Price per share \ 16 \ 15 Shares outstanding (millions) 10.2 8.0 Share options outstanding (millions) 0.3 0.2 Shareholders' Equity 126.6 63.6 Total Liabilities and Shareholders' Equity 533.1 386.7 -Refer to the income statement above. Assuming that Luther has no convertible bonds outstanding, then for the year ending 30 June 2012, Luther's diluted earnings per share are closest to:

A firm whose primary business is in a line of regional grocery stores would be most likely to have to include which of the following facts, if true, in the firm's management discussion and analysis (MD&A)?

A public company has a book value of $128 million. They have 20 million shares outstanding, with a market price of $4 per share. Which of the following statements is true regarding this company?

Manufacturer A has a profit margin of 2.0%, an asset turnover of 1.7 and an equity multiplier of 4.9. Manufacturer B has a profit margin of 2.3%, an asset turnover of 1.1 and an equity multiplier of 4.7. How much asset turnover should manufacturer B have to match manufacturer A's ROE?

Use the table for the question(s) below. Income Statement for Xenon Manufacturing: 2011 2012 Total sales 202 212 Cost of sales -148 -172 Gross Profit 54 40 Selling, general, and administrative expenses -22 -20 Research and development -8 -7 Depreciation and amortisation -4 -3 Other income 4 6 Earnings before interest and taxes (EBIT) 24 16 Interest income (expense) -7 -4 Pretax income 14 12 Taxes -4 -3 Net Income 10 9 -Consider the above Income Statement for Xenon Manufacturing. All values are in millions of dollars. Calculate the operating margin for 2011 and 2012. What does the change in the operating margin between these two years imply about the company?

The balance sheet shows the assets, liabilities, and shareholders' equity of a firm over a given length of time.

Which of the following is a way that the Operating Activity section of the statement of cash flows adjusts Net Income from the balance sheet?

Use the table for the question(s) below. Balance Sheet Assets Liabilities Current Assets Cash 50 Accounts receivable 22 Inventories 17 Total current assets 89 Current Liabilities Accounts payable 42 Notes pavable/short-term debt 7 Total current liabilities 49 Long-Term Assets Net property, plant, and equipment 121 Total long-term assets 121 Total Assets 210 Long-Term Liabilities Long-term debt 128 Total long-term liabilities 128 Total Liabilities Shareholders' Equity 33 Total Liabilities and 210 Shareholders' Equity -The above diagram shows a balance sheet for a certain company. All quantities shown are in millions of dollars. What is the company's net working capital?

Company A has current assets of $42 billion and current liabilities of $31 billion. Company B has current assets of $2.7 billion and current liabilities of $1.8 billion. Which of the following statements is correct, based on this information?

Which of the following statements regarding the income statement is INCORRECT?

Use the table for the question(s) below Income Statement for Xenon Manufacturing: 2011 2012 Total sales 202 212 Cost of sales -148 -172 Gross Profit 54 40 Selling, general, and administrative expenses -22 -20 Research and development -8 -7 Depreciation and amortisation -4 -3 Other income 4 6 Earnings before interest and taxes (EBIT) 24 16 Interest income (expense) -7 -4 Pretax income 14 12 Taxes -4 -3 Net Income 10 9 -Consider the above Income Statement for Xenon Manufacturing. All values are in millions of dollars. Calculate the gross margin for 2011 and 2012. What does the change in the gross margin between these two years imply about the company?

Which of the following firms would be expected to have a high ROE based on that firm's high operating efficiency?

Which of the following is likely to have contributed to the failure of HIH Insurance?

Use the table for the question(s) below. Luther Corporation Consolidated Income Statement Year ended June 30 (in \ millions) 2012 2011 Total sales 610.1 578.3 Cost of sales (500.2) (481.9) Gross profit 109.9 96.4 Selling, general, and administrative expenses (40.5) (39.0) Research and development (24.6) (22.8) Depreciation and amortisation (3.6) (3.3) Operating income 41.2 31.3 Other income --- -- Earnings before interest and taxes (EBIT) 41.2 31.3 Interest income (expense) (25.1) (15.8) Pretax income 16.1 15.5 Taxes (5.5) (5.3) Net income 10.6 10.2 Price per share \ 16 \ 15 Shares outstanding (millions) 10.2 8.0 Share options outstanding (millions) 0.3 0.2 Shareholders' Equity 126.6 63.6 Total Liabilities and Shareholders' Equity 533.1 386.7 -Refer to the income statement above. For the year ending 30 June 2012, Luther's earnings per share are closest to: