Exam 17: Analysis of Financial Statements

Trend analysis is a form of horizontal analysis that can reveal patterns in data across successive periods.

Use the following selected information from Wheeler, LLC to determine the 2017 and 2016 trend percentages for net sales using 2016 as the base. 2016 Net sales \ 276,200 \ 231,400 Cost of goods sold 151,900 129,590 Operating expenses 55,240 53,240 Net earnings 27,820 19,820

Powers Company reported Net sales of $1,200,000 and Accounts Receivable, net of $78,500. The Day's sales uncollected (rounded to whole days)is:

Describe ratio analysis including its purpose, application, and interpretation.

The return on common stockholder's equity measures a company's success in earning net income for its owners.

The building blocks of financial statement analysis include (1)liquidity, (2)salability, (3)solvency, and (4)profitability.

A high level of expected risk suggests a low price-earnings (PE)ratio.

An advantage of common-size statements is that they reflect the dollar magnitude (size)of the different companies under analysis.

A financial statement analysis report helps to reduce uncertainty in business decisions through a rigorous and sound evaluation.

A ratio expresses a mathematical relation between two quantities and can be expressed as a percent, rate, or proportion.

A company with a low inventory turnover requires a smaller investment in inventory than one producing the same sales with a higher turnover.

The building blocks of financial statement analysis do not include:

Refer to the following selected financial information from Shakley's Incorporated. Compute the company's return on total assets for Year 2. Year 2 Year 1 Net sales \ 478,500 \ 426,250 Cost of goods sold 276,300 250,120 Interest expense 9,700 10,700 Net income before tax 67,250 52,680 Net income after tax 46,050 39,900 Total assets 317,100 288,000 Total liabilities 181,400 167,300 Total equity 135,700 120,700

A company with a high inventory turnover requires a smaller investment in inventory than one producing the same sales with a lower turnover.

The percent change of a comparative financial statement item is computed by subtracting the analysis period amount from the base period amount, dividing the result by the base period amount and multiplying that result by 100.

Working capital is computed as current liabilities minus current assets.

Which of the following items is typically not included as a separate item after normal revenues and expenses?

Measures taken from a selected competitor or a group of competitors are often excellent standards of comparison for analysis.

The comparison of a company's financial condition and performance across time is known as:

Market prospects are the ability to generate positive market expectations.