Exam 5: Essentials of Financial Statement Analysis

An analytical tool that measures a company's performance against a predetermined standard is a/an

Companies that consistently earn rates of return above the industry's competitive floor are said to have a competitive advantage.

Common size income statements recast each statement item as a percent of total assets.

Vince Corporation has current assets of $300,000 and current liabilities of $175,000. Required: Compute the effect of each of the following transactions on Vince's current ratio: a.Refinanced a $50,000 long-term mortgage with a short-term note. b.Purchasing $80,000 of merchandise inventory with short-term accounts payable. c.Paying $30,000 of short-term accounts payable. d.Collecting $40,000 of short-term accounts receivable.

On January 1,2041 Creek Company's beginning inventory was $500,000.During 2014 the company purchased $2,400,000 of additional inventory,and on December 31,2014 Creek's ending inventory was $300,000. Required: What was Creek's inventory turnover for 2014?

Managers' ability to freely choose among several alternative reporting methods makes it more difficult for a financial analyst to evaluate the activities and condition of a company.

Hansel Corporation's condensed balance sheets appear below: (Base Year) 2014 2013 2012 Assets: Current assets \ 55,000 \ 56,500 \ 70,000 Plant \& equipment, net 495,000 410,000 440,000 Intangible assets, net 20,000 27,500 40,000 Total assets \5 70,000 \4 94,000 \5 50,000 Liabilities \& Stockholders' Equity: Current liabilities \ 40,000 \ 35,000 \ 32,500 Long-term liabilities 395,000 310,000 375,000 Stockholders' equity 135,000 149,000 142,500 Total liabilities \& equity \5 70,000 \4 94,000 \5 50,000 -In a trend balance sheet for 2014,long-term liabilities are expressed as

Although a company's earnings are important,an analysis of its cash flows is central to all credit evaluations and lending decisions.

Disparate operating and cash conversion cycles can spell a dangerous mismatch between cash outflows and inflows.

The more a company relies on long-term borrowing to finance its business activities,the lower its debt ratio and long-term solvency risk.

Companies that are able to get people to pay premium prices for their products have successfully enacted a differentiation strategy.

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 balance sheet,all items are expressed as a percentage of

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 return on assets ratio for 2014 is (rounded):

Days payable outstanding helps analysts understand the company's pattern of cash receipts from customers.

GAAP filters the data needed for a complete and faithful picture in the financial reports.

Earnings Before Interest (EBI)adjusts net income for which one of the following groups of items?

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\% -If the intangible assets in 2014 are $50,000,the long-term debt to tangible assets for 2013 is:

Changes in a company's capital expenditures or fixed asset sales over time must

Trend statements often provide a clearer indication of growth and decline than do common size statements.

All companies should be expected to produce positive operating cash flows every year.