Exam 3: Financial Statements and Ratio Analysis

In general, the more debt (other people's money) a firm uses in relation to its assets, the smaller its financial leverage.

Complete the balance sheet for General Aviation, Inc. based on the following financial data. Balance Sheet General Aviation, Inc. December 31, 2005 Key Financial Data (2005) 1. Sales totaled $720,000. 2. The gross profit margin was 38.7 percent. 3. Inventory turned 6 times. 4. There are 360 days in a year. 5. The average collection period was 31 days. 6. The current ratio was 2.35. 7. The total asset turnover was 2.81. 8. The debt ratio was 49.4 percent. 9. Total current assets equal $159,565.

In ratio analysis, the financial statements being used for comparison should be dated at the same point in time during the year. If not, the effect of seasonality may produce erroneous conclusions and decisions.

Which of the following ratios is difficult for creditors of a firm to analyze because the data are usually not available in published financial statements?

The par value of common stock is an arbitrarily assigned per share value used primarily for accounting purposes.

On December 31, 2004, the Bradshaw Corporation had $485,000 as an ending balance for its retained earnings account. During 2005, the corporation declared a $3.50/share dividend to its stockholders. The Bradshaw Corporation has 35,000 shares of common stock outstanding. When the books were closed for 2005 year end, the corporation had a final retained earnings balance of $565,000. What was the net profit earned by Bradshaw Corporation during 2005?

The Financial Accounting Standards Board (FASB) is the federal regulatory body that governs the sale and listing of securities.

Cross-sectional ratio analysis involves comparing the firm's ratios to those of firms in other industries at the same point in time.

The ________ measures the percentage of each sales dollar remaining after ALL expenses, including taxes, have been deducted.

The statement of cash flows may also be called the

Net profits after taxes are defined as

The ________ ratio measures the firm's ability to pay contractual interest payments.

The modified DuPont formula relates the firm's return on total assets (ROA) to the

The average payment period can be calculated as accounts payable divided by average sales per day.

As a firm's cash flows become more predictable,

The original price per share received by the firm on a single issue of common stock is equal to the sum of the common stock and paid-in capital in excess of par accounts divided by the number of shares outstanding.

The ________ represents a summary statement of the firm's financial position at a given point in time.

A firm had year end 2004 and 2005 retained earnings balances of $670,000 and $560,000, respectively. The firm paid $10,000 in dividends in 2005. The firm's net profit after taxes in 2002 was ________.

________ is used by financial managers as a structure for dissecting the firm's financial statements to assess its financial condition.

The average age of inventory can be calculated as inventory divided by 365.