Exam 12: Financial Statement Analysis

A basic understanding of the range of businesses in which a company is engaged can be obtained by reading the financial statements.

The denominator in the return on equity ratio should only include the equity accounts that belong to the common shareholders.

Common size income statement analysis uses net revenues as a base for all percentages.

Use the following information for questions: Dorada Industries' books revealed the following data for 2011: Total assets \ 575,000 Shareholders' equity \ 222,900 Current liabilities 52,100 Long-term liabilities 300,000 Operating Cash flow 125,500 -Which of the following represents the times-interest-earned ratio?

Use the following information for questions: Blue Sea Corporation's books revealed the following for 2011 and 2010: 2011 2010 Cash 27,750 \ 21,250 Accounts receivable 42,000 37,500 Inventory 72,250 61,600 Other prepaid assets 12,500 12,500 Accounts payable 41,250 38,000 Other current payables 13,000 15,000 Sharehol ders' equity 100,250 79,850 Sales 525,000 450,750 Cost of sales 300,000 240,750 Operating expenses 70,000 65,000 Net income 155,000 145,000 -The current ratio for the 2011 year-end is closest to?

The return on assets ratio can be broken into two elements: the profit margin and the total equity turnover.

Ratios are useful in explaining the:

An analytical tool for comparing two companies of different sizes is:

Common sized analysis is useful for making comparisons across the various financial statements.

Why is the audit report important in the analysis of a company?

Which of the following depicts the quick ratio?

A company's optimal capital structure occurs when:

Return on equity is a measure of performance from management's perspective.

When calculating the EPS, the cumulative preferred dividends must be removed even if the dividends have not been declared and paid.

Changes in the total asset turnover ratio may indicate changes in:

Use the following information for questions: Review of the financial statements revealed the following for Sonoma Inc.: Sales $1,250,000, Net income $37,500, Total assets $650,000, Long-term debt $750,000, Interest expense $65,000 and Cost of goods sold $775,000. -When preparing common size financial statements interest expense would be shown as:

Use the following information for questions: Dorada Industries' books revealed the following data for 2011: Total assets \ 575,000 Shareholders' equity \ 222,900 Current liabilities 52,100 Long-term liabilities 300,000 Operating Cash flow 125,500 -The operating cash flow to total debt ratio for 2011 is closest to:

Lenders would be most concerned with:

A banker assessing a loan application and an equity analyst making an investment decision would perform the same type of analysis of a company.

To see if a company's cost of sales is increasing proportionately with sales an analyst would use: