Exam 12: Analyzing and Interpreting Financial Statements

Bank of Royal's credit manager, Massimo Rozzi is interested in assessing the efficiency, profitability and liquidity of Spherion PLC.Rozzi has collected the following data for Spherion: 2015 2014 2013 Days of sales outstanding 28 25 23 Days of inventory on hand 32 34 40 Number of days of payables 40 35 35 Based on this data, what is Rozzi least likely to conclude?

Ratio analysis and analytical tools are grouped into themes.All of the following are analytical themes except:

The following items were taken from the financial statements of Gannon Inc, over a three-year period: Net sales \ 340,000 \ 330,000 \ 300,000 Cost of goods sold 209,000 201,000 186,000 Gross profit 131,000 129,000 114,000 Net income 32,400 31,500 30,000 Required: A) Using horizontal analysis and 2014 as the base year, calculate the trend percentages for the items provided.Explain whether the trends are favourable or unfavourable for each item.

A) Explain what the term "earnings quality" means. B) Differentiate between high quality earnings and low quality earnings. C) Explain how the estimates used in accrual accounting and operating decisions made by management can affect earnings quality.Give one example of each.

What section of the annual report is intended to provide readers with a view of the entity through the eyes of management?

An analyst gathered the following data for a company: 2013 2014 2015 Sales \ 5,000,000 \ 4,900,000 \ 4,770,000 Net assets \ 1,630,000 \ 1,625,000 \ 1,623,000 ROE 9.8\% 10.0\% 11.\% Total asset turnover 2.0 2.1 2.2 Gross margin 33.0\% 33.6\% 34.2\% Based only on the information above, the most appropriate conclusion is that:

If a company is experiencing cash flow problems which of the following would help alleviate the problem?

What is Wang's return on equity closest to?

What are Kang's current ratio and quick ratio closest to? Current Quick Ratio Ratio A) 4.8 .50 B) 4.8 2.2 C) 2.2 .50 D) 2.2 2.2

The components of Matlock Ltd's capital structure and their related costs are as follows: Current liabilities \ 200,000 Long-term liabilities \ 800,00 Preferred shares \ 250,00 Common shares \ 250,00 Retained earnings \ 472,500 Net income \ 72,500 ${ }^{1} \$ 64,000$ interest paid $2 \$ 12,500$ dividends paid ${ }^{3} \$ 2,500$ dividends paid Matlock's corporate tax rate was 25%.Matlock has $250,000 on hand in cash and cash equivalents and is trying to decide whether to pay off $250,000 of debt or redeem the preferred shares. Required: A) What is Matlock's current return on equity? B) What would be the effect on net income of retiring the debt? What would be their new return on equity? C) What would be the effect on net income of redeeming the preferred shares? What would be their new return on equity? D) Are there any other factors that would influence your decision? E) Which of the two actions do you recommend to management? Support your answer.

All of the following are examples of accounting policies that can be used to manage earnings, except:

Cartwright Ltd.is a private company owned and operated by the Thatcher family.When trying to decide what dividends to pay, all of the following would be factors, except:

Assuming no changes in other variables, which of the following would decrease ROA?

Which of the following would best explain an increase in receivables turnover?

Wu Limited had $350,000 of current assets and $120,000 of current liabilities before borrowing $60,000 from the bank with a 6-month note payable.What effect did the borrowing transaction have on Wu Limited's current ratio?

In performing a vertical analysis, what would property, plant, and equipment be expressed as a percentage of?

What are restrictions that impose limits on the actions of a borrower called?

Which of the following will have an impact on a company's quality of earnings?

Which of the following would raise a red flag about the cash cycle of a company?

An equity investor would be primarily concerned with: