Exam 9: Metric Analysis of Financial Statements

The excess of current liabilities over quick assets is referred to as working capital.

In computing the return on total assets, interest expense is added to net income before dividing by average total assets.

Using the following data for the current year, determine the accounts receivable turnover. ? Net sales on account during the year \ 457,065 Cost of merchandise sold during the year 461,280 Accounts receivable, beginning of year 75,290 Accounts receivable, end of year 26,280 Inventory, beginning of year 185,000 Inventory, end of year 169,570

_____ is a solvency metric and is computed as total assets minus total liabilities.

If a company has current assets totaling $56,000 and current liabilities totaling $40,500, then the company's working capital totals $15,500.

Assuming that the quantities of inventory on hand during the current year were sufficient to meet all demands for sales, a decrease in the inventory turnover for the current year when compared with the turnover for the preceding year indicates an improvement in the management of inventory.

Ratios and various other analytical measures are not a substitute for sound judgment, nor do they provide definitive guides for action.

The independent auditor's report does which of the following?

The percentage analysis of increases and decreases in related items in comparative financial statements is called:

Revenue and expense data for Reuters Company are as follows: 2017 2016 Administrative expenses \ 24,750 \ 18,000 Cost of goods sold 500,000 375,000 Income tax 11,600 12,000 Net sales 750,000 600,000 Selling expenses 182,250 154,800 ? (a)Prepare a comparative income statement, with vertical analysis, stating each item for both 2017 and 2016 as a percent of sales. (b)Comment upon significant changes disclosed by the comparative income statement.

From the following data, calculate the amount of working capital. Accounts payable 58,000 Accounts receivable 47,000 Accrued liabilities 3,000 Cash 29,560 Intangible assets 57,000 Inventory 48,000 Long-term investments 127,000 Long-term liabilities 41,000 Marketable securities 32,000 Notes payable (short-term) 28,000 Property, plant, and equipment 784,000 Prepaid expenses 7,500

The balance sheets at the end of each of the first two years of operations indicate the following: 2017 2018 Total current assets \ 600,000 \ 560,000 Total investments 60,000 40,000 Total property, plant, and equipment 900,000 700,000 Total current liabilities 125,000 80,000 Total long-term liabilities 350,000 250,000 Preferred 9\% stock, \ 100 par 100,000 100,000 Common stock, \ 10 par 600,000 600,000 Paid-in capital in excess of par-common stock 60,000 60,000 Retained earnings 325,000 210,000 ? Based on the above information, if net income is $130,000 and interest expense is $40,000 for 2017, what are the earnings per share on common stock for 2017 (round to two decimal places)?

If a company has issued only one class of stock, the earnings per share is determined by dividing net income by the number of shares outstanding.

If the current credit terms are 2/10, n/30 for Jones Inc., an accounts receivable turnover of 3 for the current year would be considered normal.

The percentage analysis of increases and decreases in corresponding items in comparative financial statements is referred to as horizontal analysis.

A decrease in the ratio of liabilities to stockholders' equity indicates an improvement in the margin of safety for creditors.

Which of the following is true of liquidity?

Solvency analysis focuses on the ability of a business to make a profit.

Transic Corporation has the following financial data for 2016 and 2017. ? 2017 2016 ASSETS Current Assets: Cash \ 48,000 \ 14,000 Marketable Securities 9,000 13,000 Accounts Receivable 35,000 24,000 Other Current Assets 15,000 18,000 Total Current Assets 107,000 69,000 Fixed Assets (net) 140,000 130,000 Total Assets \ 247,000 \ 199,000 LIABILITIES Current Liabilities \ 72,000 \ 52,000 Long-term Liabilities 50,000 37,000 Total Liabilities \ 122,000 \ 89,000 Total Stockholders' Equity \ 125,000 \ 110,000 Total Liabilities And Stockholders' Equity \ 247,000 \ 199,000 ? What is Transic's current ratio for 2017?

Garnet Company reported the following on its income statement: ? Income before income taxes \ 450,000 Income tax expense 52,000 Net income \3 98,000 ? An analysis of the income statement revealed that interest expense was $50,000.Garnet Company's times interest earned are earned was: