Exam 5: Essentials of Financial Statement Analysis

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 days receivable outstanding for 2014 is (rounded):

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 operating cash flows to total liabilities for 2014 is (rounded):

Financial ratios used to determine credit risk include an assessment of

Strategies to gain a competitive advantage include product differentiation and

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 quick ratio for 2014 is (rounded): (Assume that total current assets include cash,marketable securities,accounts receivable and inventory.)

Return on Assets (ROA)can be broken down into these two components: profit margin and

When operating earnings and cash flows from operations are dissimilar,which of the following ratios is a better measure of long-term solvency?

Competition in an industry continually works to drive up the rate of return on assets towards the competitive ceiling.

Companies that consistently earn rates of return above the competitive floor in the industry are considered to possess a

Selected information taken from the accounting records of Rigor Company follows: Net accounts receivable at December 31,2013 \ 800,000 Net accounts receivable at December 31, 2014 \ 900,000 Accounts receivable turnover 7 to 1 Inventories at December 31,2013 \ 1,000,000 Inventories at December 31,2014 \ 1,200,000 Inventory turnover 3 to 1 Required: a.What was Rigor's gross margin for 2014? b.Suppose there are 360 business days in the year.What was the number of days' sales outstanding in average receivables and the number of days' sales outstanding in average inventories for 2014,respectively?

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 long-term debt to assets for 2014 is (rounded):

Financial leverage is beneficial when the company earns more than the incremental after-tax cost of debt.

Common-size financial statements recast each statement item as

Activity ratios describe the profitability of a company.

The long-term asset turnover ratio helps the analyst identify efficiency gains from improved accounts receivable and inventory management.

Credit risk analysis uses financial ratios that focus on an assessment of liquidity and solvency.

Negative operating cash flows are often attributable to increasing receivables and inventories.

Lenders have several courses of action available when a borrower is in default.

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 2014,the operating expenses are expressed as

Post Corporation purchases from suppliers on net 30 day terms,has an Accounts Receivable Turnover of 8 times,and an Inventory Turnover of 12 times.Cash inflows and outflows are