Exam 5: Analyzing and Interpreting Financial Statements

Selected balance sheet and income statement information for Peter Gilgen & Co. for 2014 through 2016 follows (millions): Compute the return on financial leverage for each year. Interpret these values for Peter Gilgen & Co.

Free

(Essay)

5.0/5

(39)

Question 1

Correct Answer:

Verified

ROE = Net income / Average stockholders' equity
2014: $26,803 / $104,538 = 25.6%
2015: $24,208 / $109,440 = 22.1%
2016: $22,000 / $112,036 = 19.6%
ROA = Earnings without interest (EWI) / Average total assets
2014: $27,159 / $233,006 = 11.7%
2015: $25,153 / $236,526 = 10.6%
2016: $22,875 / $240,598 = 9.5%
Return on financial leverage = ROE ‒ ROA
2014: 25.6% - 11.7% = 13.9%
2015: 22.1% - 10.6% = 11.5%
2016: 19.6% - 9.5% = 10.1%
Peter Gilgen & Co.'s ROE has decreased over the period, due both in part from a decrease in ROA and a decrease in ROFL.

Selected balance sheet and income statement information from the 2016 fiscal year end for American Symbol Outfitters follows in thousands: A. Calculate the company's return on equity (ROE). B. Explain what information this provides to management.

Free

(Essay)

4.7/5

(40)

Question 2

Correct Answer:

Verified

A. ROE = $484,900 / $2,638,038 = 18.38%
B. Return on equity provides management with the understanding of how effectively it is deploying shareholder capital to generate a return on the company's investment.

Selected recent balance sheet and income statement information for Shepherd, Inc. follows: A. Calculate accounts receivable turnover (ART) for 2016 and 2015. Has ART improved during the year or worsened? B. Calculate inventory turnover (INVT) for 2016 and 2015. Has INVT improved during the year or worsened?

Free

(Essay)

4.9/5

(37)

Question 3

Correct Answer:

Verified

A. 2016 ART = $15,643 / $1,530 = 10.22
2015 ART = $15,128 / $1,370 = 11.04
Accounts receivable turnover has worsened slightly during the year. The company collects its receivables balance 10.22 times in 2016 compared to collection of 11.04 times in 2015.
B. 2016 INVT = $12,508 / $130 = 96.22
2015 INVT = $12,015 / $124 = 96.90
Inventory turnover is strong and has just slightly decreased during the year. The company sold its entire inventory cost over 96 times each year.

Which one of the following is removed from net income when determining NOPAT?

(Multiple Choice)

4.8/5

(35)

Question 4

K Grocers' 2016 financial statements show average shareholders' equity of $9,264 million, net income of $1,505 million, interest expense of $870 million, and average total assets of $ 46,982 million. How much is K Grocers' return on assets for the year? Assume that the statutory tax rate is 35%.

(Multiple Choice)

4.7/5

(31)

Question 5

Selected 2016 balance sheet and income statement information for Cloud 9 Super Store and Big T follow: A. Calculate the current ratio and quick ratio for both companies. B. Which company is more liquid? C. Calculate the times interest earned and debt-to-equity ratio for both companies. D. Which company is more solvent? Explain.

(Essay)

4.9/5

(30)

Question 6

Selected balance sheet and income statement information from the 2016 fiscal year end for Arrows follows: A. Compute return on net operating profit (RNOA). B. Show that RNOA = Net operating profit margin (NOPM) × Net operating asset turnover (NOAT)

(Essay)

4.8/5

(25)

Question 7

The income statements for Bullseye Corporation for fiscal years 2015, 2014, and 2013 (years ending January 30, 2016, January 31, 2015, and February 1, 2014, respectively) follow: A. Prepare a common-size income statement for 2015 and 2014. B. Comment on the most significant changes.

(Essay)

4.8/5

(38)

Question 8

Selected 2016 balance sheet and income statement information for an office supply retailer, Office Supply, Inc., follows (in $ millions): Compute accounts receivable turnover and inventory turnover for Office Supply, Inc.

(Essay)

4.9/5

(37)

Question 9

Selected balance sheet and income statement information for the office supply retailer, Office Supply, Inc., for FY 2014 through FY 2016 follows: A. Compute the current ratio for each year and discuss any trends. Do you feel that the company is sufficiently liquid? Explain. What additional information might be helpful in analyzing the liquidity? B. Compute times interest earned ratio for each year and discuss any trends. Do you have any concerns about its level of financial leverage and its ability to meet interest obligations? Explain.

(Essay)

4.7/5

(34)

Question 10

Selected balance sheet and income statement information from Edward Electric for fiscal years 2014 through 2016 follows: A. Compute times interest earned for each year and discuss any trends. B. What concerns about Edward Electric's ability to meet its interest obligations might creditors have? Explain.

(Essay)

4.7/5

(33)

Question 11

Use the selected balance sheet and income statement information below for Brahtz, Inc. to compute the times interest earned ratio. Explain what information this ratio provides.

(Essay)

4.8/5

(34)

Question 12

The balance sheets and income statements for Omni Communications follow: A. Compute the company's current ratio for 2016 and 2015. Comment on any observed trend. B. Compute the company's times interest earned and debt-to-equity ratio for 2016 and 2015. Comment on any observed trend. C. Summarize your findings in a conclusion about the company's liquidity and solvency. Do you have any concerns about the company's ability to meet its debt obligations?

(Essay)

4.8/5

(33)

Question 13

NOPAT is equivalent to income from operating activities.

(True/False)

4.7/5

(37)

Question 14

Selected recent balance sheet and income statement information for Holiday Corporation follows: A Calculate accounts receivable turnover (ART) for 2016 and 2015. Has ART improved during the year or worsened? B. Calculate inventory turnover (INVT) for 2016 and 2015. Has INVT improved during the year or worsened?

(Essay)

4.8/5

(39)

Question 15

K Grocers' 2016 balance sheet shows average shareholders' equity of $9,264 million, net income of $1,505 million, and common shares issued of $1,918 million. The company has no preferred shares issued. K Grocers' return on common equity for the year is:

(Multiple Choice)

4.8/5

(33)

Question 16

Discuss factors that limit the usefulness of financial accounting information for ratio analysis.

(Essay)

4.7/5

(38)

Question 17

The partial balance sheets and income statements for Peter Gilgen & Co. for fiscal years ending June 30, 2016 and 2015 follow: A. Calculate accounts receivable turnover (ART) for 2016 and 2015. Accounts receivable in 2014 totaled $10,670 million. Has ART improved during the year or worsened? B. Calculate inventory turnover (INVT) for 2016 and 2015. Inventories in 2014 were $12,768 million. Has INVT improved during the year or worsened? C. Calculate asset turnover (AT) for 2016 and 2015 considering that 2014 total assets are $256,344 million. Has AT improved during the year or worsened?

(Essay)

4.9/5

(36)

Question 18

Into what two measures can return on net operating assets be disaggregated?

(Multiple Choice)

4.8/5

(31)

Question 19

K Grocers' 2016 financial statements show interest expense of $870 million, net income of $1,505 million, sales of $225,935 million, and average total assets of $23,491 million. Assume that the statutory tax rate is 35%. How much is K Grocers' profit margin for the year?

(Multiple Choice)

4.8/5

(38)

Question 20

Showing 1 - 20 of 51

Selected balance sheet and income statement information for Peter Gilgen & Co. for 2014 through 2016 follows (millions): Compute the return on financial leverage for each year. Interpret these values for Peter Gilgen & Co.

Selected balance sheet and income statement information from the 2016 fiscal year end for American Symbol Outfitters follows in thousands: A. Calculate the company's return on equity (ROE). B. Explain what information this provides to management.

Which one of the following is removed from net income when determining NOPAT?

K Grocers' 2016 financial statements show average shareholders' equity of $9,264 million, net income of $1,505 million, interest expense of $870 million, and average total assets of $ 46,982 million. How much is K Grocers' return on assets for the year? Assume that the statutory tax rate is 35%.

Selected balance sheet and income statement information from the 2016 fiscal year end for Arrows follows: A. Compute return on net operating profit (RNOA). B. Show that RNOA = Net operating profit margin (NOPM) × Net operating asset turnover (NOAT)

The income statements for Bullseye Corporation for fiscal years 2015, 2014, and 2013 (years ending January 30, 2016, January 31, 2015, and February 1, 2014, respectively) follow: A. Prepare a common-size income statement for 2015 and 2014. B. Comment on the most significant changes.

Selected 2016 balance sheet and income statement information for an office supply retailer, Office Supply, Inc., follows (in $ millions): Compute accounts receivable turnover and inventory turnover for Office Supply, Inc.

Use the selected balance sheet and income statement information below for Brahtz, Inc. to compute the times interest earned ratio. Explain what information this ratio provides.

NOPAT is equivalent to income from operating activities.

K Grocers' 2016 balance sheet shows average shareholders' equity of $9,264 million, net income of $1,505 million, and common shares issued of $1,918 million. The company has no preferred shares issued. K Grocers' return on common equity for the year is:

Discuss factors that limit the usefulness of financial accounting information for ratio analysis.

Into what two measures can return on net operating assets be disaggregated?

K Grocers' 2016 financial statements show interest expense of $870 million, net income of $1,505 million, sales of $225,935 million, and average total assets of $23,491 million. Assume that the statutory tax rate is 35%. How much is K Grocers' profit margin for the year?

Introducing Financial Accounting

Constructing Financial Statements

Adjusting Accounts for Financial Statements

Reporting and Analyzing Cash Flows

Reporting and Analyzing Revenues and Receivables

Reporting and Analyzing Inventory

Reporting and Analyzing Long-Term Operating Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Leases, Pensions, and Income Taxes

Reporting and Analyzing Stockholders Equity

Reporting and Analyzing Financial Investments

Appendix : Compound Interest and the Time-Value of Money

Filters