Exam 14: Financial Statement Analysis Available Online in Connect

On December 31, Year 1, Allen Company's total current assets were $600,000 and its total current liabilities were $380,000. On January 1, Year 2, Allen paid $20,000 on accounts payable. Required: (a)Compute Allen's working capital (1)before and (2)after paying the account payable.(b)Compute Allen's current ratio (1)before and (2)after paying the account payable. Round your answer to two decimal places.

Which ratio would you use to examine a company's ability to pay its debts in the short-term?

Martin Company reported net income of $15,200 on gross sales of $84,000. The company has average total assets of $119,200, of which $104,000 is property, plant and equipment. What is the company's return on investment? (Round your answer to 2 decimal places.)

Phips Company paid total cash dividends of $59,400 on 18,000 outstanding common shares. On the most recent trading day, the common shares sold at $73. What is this company's dividend yield? (Do not round your intermediate calculations.)

Financial ratio analysis is a form of horizontal analysis in that comparisons are made between different accounts in the same set of financial statements.

Which ratio measures the percentage of a company's assets that are financed by debt?

Dennis Company reported net income of $66,000 on sales of $460,000. The company has average total assets of $740,000 and average total liabilities of $260,000. What is the company's return on equity ratio?

Grove Corporation had sales of $3,000,000, cost of sales of $2,250,000, and average inventory of $500,000. What was Grove's inventory turnover ratio for the period?

Indicate whether each of the following statements about financial statement analysis is true or false.________ a)Having too little inventory can hurt a company's profitability because of lost sales.________ b)Having too much inventory can hurt a company's profitability because of excess costs.________ c)Generally, a lower inventory turnover indicates that merchandise is being handled more efficiently.________ d)Average days to sell inventory is the number of times, on average, that inventory is replaced during the year.________ e)Values for the inventory turnover ratio vary widely among different industries.

Indicate whether each of the following statements about financial statement analysis is true or false.________ a)Working capital measures a company's immediate debt-paying ability.________ b)Accounts receivable turnover is a direct measure of a company's uncollectible accounts expense.________ c)Accounts receivable turnover is calculated by using the following formula: net credit sales ÷ average accounts receivable.________ d)Net credit sales are comprised of sales on account plus sales returns and discounts.________ e)The amount of average receivables can be calculated using the amount of receivables shown on balance sheets for the current year and previous year.

For Year 2, Weston Corporation reported after-tax net income of $1,200,000. During the year, the number of outstanding shares of 6% $100 par preferred stock remained constant at 5,000, and 500,000 shares of common stock were outstanding all year. The company's total stockholders' equity at December 31, Year 2, was $12,500,000. Weston's common stock was selling at $38 per share at the end of the year. All dividends for the year were paid, including a dividend of $2.50 per share to common stockholders. Required:Compute the following:(a)Earnings per share (Round your answer to the nearest cent.)(b)Book value per share of common stock(c)Price-earnings ratio (Round your answer to one decimal place.)(d)Dividend yield (Round your answer to one decimal place.)

The Fortune Company reported the following income for Year 2: What is the company's number of times interest earned ratio?

What is a primary drawback with examining and comparing absolute amounts from two businesses' financial statements?

The following balance sheet information is provided for Greene Company for Year 2: What is the company's quick (acid-test)ratio? (Round your answer to 1 decimal place.)

Many companies have to monitor some of their financial statement ratios, such as the current ratio, due to debt covenants. Selected transactions are provided below for a company that uses a perpetual inventory system; sells its merchandise at a selling price that exceeds cost; and had a current ratio of 1.85 to 1 before the event occurred. Required: In the above table, indicate whether each transaction would increase (+), decrease (−), or not affect (0)the company's working capital and the current ratio.

Jenkins Company's current ratio is higher than the average for its industry, while its quick ratio is below the industry average. One possible interpretation for these results is that Jenkins carries less inventory than most companies in its industry.

You are considering an investment in Facebook stock and wish to assess the company's position in the stock market. All of the following ratios can be used except:

The Poole Company reported the following income for Year 2: What is the company's net margin? (Rounded to the nearest whole percent.)

Long-term creditors are usually most interested in evaluating:

Sable Company is seeking a short-term loan from its local bank. The banker needs assurance that the company will be able to repay the loan. Describe three financial ratios the banker should consider including in the loan approval process. What information does each of your selected ratios provide?