Exam 14: Financial Statement Analysis Online

Arlberg Company's net income last year was $250,000.The company had 150,000 common shares and 80,000 preferred shares.There was no change in the number of common or preferred shares outstanding during the year.The company declared and paid dividends last year of $1.30 per common share and $1.40 per preferred share.The earnings per common share was closest to which of the following?

Financial statements for Lowe Company appear below: Total dividends paid during the year were $25,000,of which $12,000 was paid to the preferred shareholders. Required: Calculate the following for Year 2: a)Current ratio. b)Acid-test (quick)ratio. c)Average collection period (age of receivables). d)Inventory turnover. e)Return on total assets. f)Times interest earned. g)Debt-to-equity ratio.

When calculating the return on total assets,the after-tax effect of interest expense must be subtracted from net income.

Fracus Company had $100,000 in sales on account last year.The beginning accounts receivable balance was $14,000,and the ending accounts receivable balance was $16,000.The company's accounts receivable turnover was closest to which of the following?

Marcy Corporation's current ratio is currently 1.75 to 1.The firm's current ratio cannot fall below 1.5 to 1 without violating agreements with its bondholders.If current liabilities are presently $250 million,what is the maximum new short-term debt that can be issued to finance an equivalent amount of inventory expansion?

Marcial Company's average sale period (turnover in days)for Year 2 was closest to which of the following? Do not round intermediate calculations.

The gross margin percentage is calculated taking the difference between sales and cost of goods and then dividing the result by sales.

The Miller Company's current ratio is greater than 1.0 to 1.By paying off some of its accounts payable using cash,what would be the effect on the company's current ratio?

Selected financial data for Irvington Company appear below: During the year,the company paid dividends of $10,000 on its preferred shares.The company's net income for the year was $120,000.The company's return on common shareholders' equity for the year was closest to which of the following?

Crawler Company's net income last year was $80,000.The company paid dividends on preferred shares of $10,000,and its average common shareholders' equity was $400,000.The company's return on common shareholders' equity for the year was closest to which of the following?

Narita Company's debt-to-equity ratio at the end of Year 2 was closest to which of the following?

M.K.Berry is the managing director of CE Ltd.a small,family-owned company that manufactures cutlery.His company belongs to a trade association that publishes a monthly magazine.The latest issue of the magazine contains a very brief article based on the analysis of the accounting statements published by the 40 companies that manufacture this type of product.The article contains the following table: CE Ltd's latest financial statements are as follows: The country in which the company operates has no corporate income tax.No dividends were paid during the year.All sales are on account. Required: a)Calculate each of the ratios listed in the magazine article for this year for CE,and comment briefly on CE Ltd.'s performance in comparison to the industry averages. b)Explain why it could be misleading to compare CE Ltd.'s ratios with those taken from the article.

Several investors are in the process of organizing a new company.The investors feel that $800,000 would be adequate to finance the new company's operations.Three methods are available to finance the new company: (1. )All $800,000 could be obtained through the issuance of common shares. (2. )Common shares could be issued to provide $400,000 with the other $400,000 obtained by issuing $100 par value,l0% preferred shares. (3. )Common shares could be issued to provide $40,000 with the other $400,000 obtained by issuing bonds with an interest rate of 10%. The investors are confident that the company could earn $175,000 each year before interest and taxes.The tax rate is 40%. Required: a)If the estimates are correct,compute the net income available to common shareholders under each of the three financing methods proposed above. b)Using the income data computed in part a)above,compute the return on common shareholders' equity under each of the three methods. c)Why do methods 2 and 3 provided a greater return on common equity than does method 1? Why does method 3 provide a greater return on common equity than method 2?

If a company has a current ratio greater than 1.0 to 1,repaying a short-term note payable will increase the current ratio.

Fulton Company's price-earnings ratio is 8.0,and the market price of its common shares is $32.The company has 3,000 shares of preferred shares outstanding,with each share receiving a dividend of $3.What is the earnings per common share?

Laroche Company's return on common shareholders' equity for Year 2 was closest to which of the following?

March Company's average collection period (age of receivables)for Year 2 was closest to which of the following?

Last year,Jabber Company had a net income of $180,000,income tax expense of $62,000,and interest expense of $20,000.The company's times interest earned was closest to which of the following?

Brachlan Company's net income last year was $80,000,and its interest expense was $20,000.Total assets at the beginning of the year were $660,000,and total assets at the end of the year were $620,000.The company's income tax rate was 30%.The company's return on total assets for the year was closest to which of the following?

If the assets in which funds are invested have a rate of return lower than the fixed rate of return paid to the supplier of the funds,then financial leverage is positive.