Exam 12: Financial Statement Analysis

Ratio analysis provides a complete picture of the general financial health and wellbeing of a company.

When analyzing companies that have diverse business activities, analysts should not rely on segmented information.

Listed below are the names and definitions of various measures used in financial analysis. Match the names to the definitions by placing the appropriate letter in the space provided.

Which of the following is a short-term liquidity ratio?

Mirabel Corporation's financial statements for 2020 follow: Instructions a) If Mirabel were preparing common-size financial statements, calculate the following: i. Cost of goods sold ii. Operating expenses iii. Net Income b) Calculate the following liquidity ratios for Mirabel: i. Current ratio ii. Quick ratio iii. Days Accounts receivable (assume average assets are the same as year-end assets) iv. Days Inventory (assume average assets are the same as year-end assets) c) Comment on Mirabel's performance.

What is the difference between trend analysis and cross-sectional analysis? What drawbacks are there with cross-sectional analysis?

Which of the following best represents a company following the product differentiation strategy?

Presented below are a series of financial ratios for two companies in the same industry: Instructions Write an analysis of the two companies. Include any comments you might have about their relative ability to manage their current assets and to meet their current obligations.

Given the following data: sales $1,500,000; gross profit $640,000; net income $40,000 and income tax expense $35,000. What is the common-size percentage for the cost of sales?

Review of the financial statements revealed the following for Hyde 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. What is the Hyde's gross profit margin closest to?

"Window dressing" is a term used when a company postpones transactions to produce a more desirable number to be used in ratio calculations.

Analysts use financial statements for their analysis for all of the following reasons except

Investors should be cautious when using non-IFRS financial measures and industry metrics because there are no standard definitions for these measures.

Financial statement analysis can be performed by a(n)

An investment analyst will only focus on historic results as future growth will not impact shareholder decisions.

Retrospective analysis is using the past to predict future trends.

Which of the following descriptions best describes common-size analysis?

In order to understand a company's business, an analyst must understand the corporation's strategy. Which of the following is an example of a corporate strategy?

Review of the financial statements revealed the following for Jekyll 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

Calypso Corporation reported the following comparative current assets and current liabilities: During 2020, credit sales and cost of goods sold were $480,000 and $288,000, respectively. Instructions Calculate the following ratios for 2020: (a) Current ratio (b) Receivables turnover (c) Inventory turnover