Exam 5: Essentials of Financial Statement Analysis

Return on assets will generally equal return on common equity except when the company has no long-term debt.

Predicting loan default and bankruptcy are relatively easy tasks if financial ratios are carefully analyzed.

Condensed financial data are presented below for the Phoenix Corporation: 2014 2013 Accounts receivable \ 267,500 \ 230,000 Inventory 312,500 257,500 Total current assets 670,000 565,000 Intangible assets 50,000 60,000 Total assets 825,000 695,000 Current liabilities 252,500 200,000 Long-term liabilities 77,500 75,000 Sales 1,640,000 Cost of goods sold 982,500 Interest expense 10,000 Income tax expense 77,500 Net income 127,500 Cash flow from operations 71,000 Cash flow from investing activities (6,000) Cash flow from financing activities (62,500) Tax rate 30\% -The profit margin used to calculate return on assets for 2014 is (rounded):

In comparison of 2014 to 2013 performance,Weir Company's inventory turnover decreased substantially,although sales and inventory amounts were essentially unchanged. Required: Which of the following statements best explains the decreased inventory turnover ratio? Explain your answer choice. a.Cost of goods sold increased. b.Gross profit percentage increased. c.Accounts receivable turnover decreased. d.Total asset turnover decreased.

The ratio that captures information about property,plant,and equipment utilization is

The percentage of assets financed by long-term debt is best described by the

The accounts receivable turnover ratio can be used by the analyst to spot changing customer payment patterns.

Which one of the following successful strategies will increase the Return on Assets (ROA)?

Condensed financial data are presented below for the Phoenix Corporation: 2014 2013 Accounts receivable \ 267,500 \ 230,000 Inventory 312,500 257,500 Total current assets 670,000 565,000 Intangible assets 50,000 60,000 Total assets 825,000 695,000 Current liabilities 252,500 200,000 Long-term liabilities 77,500 75,000 Sales 1,640,000 Cost of goods sold 982,500 Interest expense 10,000 Income tax expense 77,500 Net income 127,500 Cash flow from operations 71,000 Cash flow from investing activities (6,000) Cash flow from financing activities (62,500) Tax rate 30\% -The interest coverage for 2014 is:

Established growth companies require substantial investments in property,plant,and equipment at a stage when operating cash flows are typically negative.

Return on Assets (ROA)measures a firm's

ROCE measures a company's performance in using capital provided by common shareholders to generate earnings.

The statement of cash flows is an important source of information when analyzing a company's credit risk.

Most financial ratios can only be calculated in one way.

According to most observers,there are numerous strategies for achieving superior performance in any business.

Return on assets is defined as EBI divided by total year-end assets.

Analysts use financial statement information to assess the economic activities of a company and its condition.

When analyzing a company's risk of bankruptcy using Altman's Z-score,a high Z-score indicates low risk of default.

The following data were taken from the financial records of Happy Corporation for 2014: Sales \ 3,600,000 Bond interest expense 100,000 Income taxes 700,000 Net income 900,000 Required: How many times was bond interest earned in 2014?

Manero Company included the following information in its annual report: 2014 2013 2012 Sales \ 178,400 \ 162,500 \ 155,500 Cost of goods sold 115,000 102,500 100,000 Operating expenses 50,000 50,000 45,000 Net income 13,400 10,000 10,500 -In a common size income statement for 2012,the cost of goods sold is expressed as