Exam 19: Financial Statement Analysis

If you wish to compute economic earnings and are trying to decide how to account for inventory,

The financial statements of Black Barn Company are given below. Black Barn Company Income Statement (2009) Sales \ 8,000,000 Cost of goods sold Gross profit 2,740,000 Selling \& administrative expenses Operating profit 1,240,000 Interest expense Income before tax 1,100,000 Tax expense Net income Balance Sheet 2009 Cash \ 200,000 Accounts receivable 1,200,000 Inventory Total current assets \ 3,240,000 Fixed assets Total assets Accounts Payable \ 800,000 Bank loan Total current liabilities \ 1,400,000 Bond payable Total liabilities Common stock ( 130,000 shares) \ 300,000 Retained earnings Total liabilities \& equity 2008 \ 50,000 950,000 \ 2,500,000 \ 720,000 \ 820,000 \ 300,000 Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's asset turnover ratio for 2009 is

The financial statements of Black Barn Company are given below. Black Barn Company Income Statement (2009) Sales \ 8,000,000 Cost of goods sold Gross profit 2,740,000 Selling \& administrative expenses Operating profit 1,240,000 Interest expense Income before tax 1,100,000 Tax expense Net income Balance Sheet 2009 Cash \ 200,000 Accounts receivable 1,200,000 Inventory Total current assets \ 3,240,000 Fixed assets Total assets Accounts Payable \ 800,000 Bank loan Total current liabilities \ 1,400,000 Bond payable Total liabilities Common stock ( 130,000 shares) \ 300,000 Retained earnings Total liabilities \& equity 2008 \ 50,000 950,000 \ 2,500,000 \ 720,000 \ 820,000 \ 300,000 Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's quick ratio for 2009 is

__________ is a report of the cash flow generated by the firm's operations, investments, and financial activities.

Over a period of 30 years or so, in managing investment funds, Benjamin Graham used the approach of investing in the stocks of companies where the stocks were trading at less than their working capital value. The average return from using this strategy was approximately

The financial statements of Snapit Company are given below. Snapit Company Income Statement (2009) Sales \ 4,000,000 Cost of goods sold Gross profit 960,000 Selling \& administrative expenses Operating profit 530,000 Interest expense Income before tax 370,000 Tax expense Net income Balance Sheet 2009 Cash \ 60,000 Accounts receivable 550,000 Inventory Total current assets \ 1,300,000 Fixed assets Total assets Accounts Payable \ 270,000 Bank loan Total current liabilities \ 850,000 Bond payable Total liabilities Common stock ( 130,000 shares) \ 2500,000 Retained earnings Total liabilities \& equity 2008 \ 50,000 500,000 \ 1,170,000 \ 250,000 \ 750,000 \ 250,000 Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's fixed asset turnover ratio for 2009 is

__________ best explains a ratio of sales/average net fixed assets that exceeds the industry average.

Which of the financial statements recognizes only transactions in which cash changes hands?

The financial statements of Midwest Tours are given below. Midwest Tours Income Statement (2009) Sales \ 2,500,000 Cost of goods sold Gross profit 1,240,000 Selling \& administrative expenses Operating profit 540,000 Interest expense Income before tax 380,000 Tax expense Net income Balance Sheet 2009 Cash \ 60,000 Accounts receivable 500,000 Inventory Total current assets \ 860,000 Fixed assets Total assets Accounts Payable \ 200,000 Bank loan Total current liabilities \ 660,000 Bond payable Total liabilities Common stock ( 130,000 shares) \ 120,000 Retained earnings Total liabilities \& equity 2008 \ 50,000 450,000 \ 770,000 \ 170,000 \ 610,000 \ 120,000 Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's quick ratio for 2009 is

The financial statements of Snapit Company are given below. Snapit Company Income Statement (2009) Sales \ 4,000,000 Cost of goods sold Gross profit 960,000 Selling \& administrative expenses Operating profit 530,000 Interest expense Income before tax 370,000 Tax expense Net income Balance Sheet 2009 Cash \ 60,000 Accounts receivable 550,000 Inventory Total current assets \ 1,300,000 Fixed assets Total assets Accounts Payable \ 270,000 Bank loan Total current liabilities \ 850,000 Bond payable Total liabilities Common stock ( 130,000 shares) \ 2500,000 Retained earnings Total liabilities \& equity 2008 \ 50,000 500,000 \ 1,170,000 \ 250,000 \ 750,000 \ 250,000 Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's times interest earned ratio for 2009 is

The financial statements of Snapit Company are given below. Snapit Company Income Statement (2009) Sales \ 4,000,000 Cost of goods sold Gross profit 960,000 Selling \& administrative expenses Operating profit 530,000 Interest expense Income before tax 370,000 Tax expense Net income Balance Sheet 2009 Cash \ 60,000 Accounts receivable 550,000 Inventory Total current assets \ 1,300,000 Fixed assets Total assets Accounts Payable \ 270,000 Bank loan Total current liabilities \ 850,000 Bond payable Total liabilities Common stock ( 130,000 shares) \ 2500,000 Retained earnings Total liabilities \& equity 2008 \ 50,000 500,000 \ 1,170,000 \ 250,000 \ 750,000 \ 250,000 Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's return on sales ratio for 2009 is

The financial statements of Midwest Tours are given below. Midwest Tours Income Statement (2009) Sales \ 2,500,000 Cost of goods sold Gross profit 1,240,000 Selling \& administrative expenses Operating profit 540,000 Interest expense Income before tax 380,000 Tax expense Net income Balance Sheet 2009 Cash \ 60,000 Accounts receivable 500,000 Inventory Total current assets \ 860,000 Fixed assets Total assets Accounts Payable \ 200,000 Bank loan Total current liabilities \ 660,000 Bond payable Total liabilities Common stock ( 130,000 shares) \ 120,000 Retained earnings Total liabilities \& equity 2008 \5 0,000 450,000 \ 770,000 \1 70,000 \ 610,000 \ 1,470,000 \ 120,000 Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's return on sales ratio for 2009 is

The financial statements of Black Barn Company are given below. Black Barn Company Income Statement (2009) Sales \ 8,000,000 Cost of goods sold Gross profit 2,740,000 Selling \& administrative expenses Operating profit 1,240,000 Interest expense Income before tax 1,100,000 Tax expense Net income Balance Sheet 2009 Cash \ 200,000 Accounts receivable 1,200,000 Inventory Total current assets \ 3,240,000 Fixed assets Total assets Accounts Payable \ 800,000 Bank loan Total current liabilities \ 1,400,000 Bond payable Total liabilities Common stock ( 130,000 shares) \ 300,000 Retained earnings Total liabilities \& equity 2008 \ 50,000 950,000 \ 2,500,000 \ 720,000 \ 820,000 \ 300,000 Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's return on equity ratio for 2009 is

If the interest rate on debt is higher than ROA, a firm will __________ by increasing the use of debt in the capital structure.

The financial statements of Black Barn Company are given below. A. 8.88. B. 7.63. C. 7.88. D. 7.32.

The financial statements of Snapit Company are given below. Snapit Company Income Statement (2009) Sales \ 4,000,000 Cost of goods sold Gross profit 960,000 Selling \& administrative expenses Operating profit 530,000 Interest expense Income before tax 370,000 Tax expense Net income Balance Sheet 2009 Cash \ 60,000 Accounts receivable 550,000 Inventory Total current assets \ 1,300,000 Fixed assets Total assets Accounts Payable \ 270,000 Bank loan Total current liabilities \ 850,000 Bond payable Total liabilities Common stock ( 130,000 shares) \ 250,000 Retained earnings Total liabilities \& equity 2008 \ 50,000 500,000 \ 1,170,000 \ 250,000 \ 750,000 \ 250,000 Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements for Snapit Company. The firm's current ratio for 2009 is

Proceeds from a company's sale of stock to the public are included in

The level of real income of a firm can be distorted by the reporting of depreciation and interest expense. During periods of high inflation, the level of reported depreciation tends to __________ income, and the level of interest expense reported tends to __________ income.

A firm has an ROA of 14%, a debt/equity ratio of 0.8, a tax rate of 35%, and the interest rate on the debt is 10%. The firm's ROE is

The financial statements of Black Barn Company are given below. Black Barn Company Income Statement (2009) Sales \ 8,000,000 Cost of goods sold Gross profit 2,740,000 Selling \& administrative expenses Operating profit 1,240,000 Interest expense Income before tax 1,100,000 Tax expense Net income Balance Sheet 2009 Cash \ 200,000 Accounts receivable 1,200,000 Inventory Total current assets \ 3,240,000 Fixed assets Total assets Accounts Payable \ 800,000 Bank loan Total current liabilities \ 1,400,000 Bond payable Total liabilities Common stock ( 130,000 shares) \ 300,000 Retained earnings Total liabilities \& equity 2008 \ 50,000 950,000 \ 2,500,000 \ 720,000 \ 820,000 \ 300,000 Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's average collection period for 2009 is