Exam 13: Analysis of Financial Statements

Total asset turnover reflects a company's ability to use its assets to generate sales and is an important indication of operating efficiency.

The evaluation of company performance and financial condition includes evaluation of (1)past and current performance,(2)current financial position,and (3)future performance and risk.

A company's sales in 2013 were $250,000 and in 2014 were $287,500.Using 2013 as the base year,the sales trend percent for 2013 is:

Corona Company's balance sheet accounts follow: At December 31 2014 2013 2012 Assets Cash \ 25,868 \ 31,163 \ 31,182 Accounts receivable, net 78,034 53,995 41,152 Merchandise inventory 95,120 73,491 46,095 Prepaid expenses 8,330 8,099 3,429 Plant assets,net 241,854 218,932 199,542 Total assets \4 49,206 \3 85,680 \3 21,400 Liabilities and Equity Accounts payable \ 108,058 \ 67,135 \ 42,849 \ Long-term notes payable secured by mortgages on plant assets 85,791 87,819 71,029 Common stock, \ 10 par value 162,500 162,500 162,500 Retained earnings 92,857 68,226 45,022 Total liabilities and equity \ 449,206 \ 385,680 \ 321,400 What is Corona Company's days' sales in inventory ratio for 2014,assuming net sales and gross profit for the period were $1,236,783,$927,587 respectively?

Explain the form and content of a complete income statement.

Explain the purpose of financial statement analysis for both external and internal users.

Vertical analysis is the comparison of a company's financial condition and performance through time.

Liquidity refers to the availability of resources to meet short-term cash requirements.

The ability to generate positive market expectations is called:

The current year-end balance sheet data for a company are shown below: Assets Cash \ 18,000 Marketable securities 45,000 Accounts receivable (net) 157,500 Merchandise inventory 139,500 Long-term investments 135,000 Plant assets (net) 517,500 Total assets \ 1,012,500 Liabilities and equity: Accounts payable \ 168,700 Accrued liabilities 90,000 Notes payable (secured by plant assets) 234,800 Common stock (\ 12 par) 180,000 Contributed capital in excess of par 135,000 Retained earnings 204,000 Total liabilities and equity \ 1,012,500 Calculate this company's: (1)Working capital (2)Acid-test ratio

Use the following information from the current year financial statements of a company to calculate the ratios below: (a)Current ratio. (b)Accounts receivable turnover.(Assume the prior year's accounts receivable balance was $100,000.) (c)Days' sales uncollected. (d)Inventory turnover.(Assume the prior year's inventory was $50,200.) (e)Times interest earned ratio. (f)Return on common stockholders' equity.(Assume the prior year's common stock balance was $480,000 and the retained earnings balance was $128,000.) (g)Earnings per share (assuming the corporation has a simple capital structure,with only common stock outstanding). (h)Price earnings ratio.(Assume the company's stock is selling for $26 per share.) (i)Divided yield ratio.(Assume that the company paid $1.25 per share in cash dividends.) Income statement data: Sales (all on credit) \ 1,075,000 Cost of goods sold 575,000 Gross profit on sales \ 500,000 Operating expenses 305,000 Operating income \ 195,000 Interest expense \ 20,400 Income before taxes \ 174,600 Income taxes 74,000 Net income \ 100,600 Balance sheet data: Cash \ 38,400 Accounts receivable 120,000 Inventory 56,700 Prepaid Expenses 24,000 Total current assets \ 239,100 Total plant assets 708,900 Total assets \ 948,000 Accounts payable \ 91,200 Interest payable 4,800 Long-term liabilities 204,000 Total liabilities \ 300,000 Common stock, \ 10 par 480,000 Retained earnings 168,000 Total liabilities and equity \ 948,000

Financial statements with data for two or more successive accounting periods placed in columns side by side,sometimes with changes shown in dollar amounts and percents,are referred to as:

What is the purpose of a good financial statement analysis report? What are the key components?

General standards of comparisons (rules-of-thumb)are developed from:

Comparative financial statements are reports that show financial amounts placed side by side in columns on a single statement for analysis purposes.

In which comparative financial statements is each amount expressed as a percentage of a base amount?

A company can change from one acceptable accounting principle to another as long as the change improves the usefulness of information in its financial statements.

A company's balance sheet and income statement accounts follow: At December 31 2014 2013 2012 Assets Cash \ 30,872 \ 36,086 \ 37,974 Accounts receivable, net 89,476 63,151 50,632 Merchandise inventory 112,499 83,450 54,467 Prepaid expenses 9,942 9,473 4,219 Plant assets, net 291,143 268,126 244,108 Total assets \ 533,932 \ 460,286 \ 391,400 Liabilities and Equity Accounts payable \ 130,290 \ 76,233 \ 50,632 Long-term notes payable secured by mortgages on plant assets 98,372 103,748 107,769 Common stock, \ 10 par value 142,500 132,500 102,500 Retained earnings 182,770 147,805 130,499 Total liabilities and equity \ 533,932 \ 460,286 \ 391,400 What is the company's gross margin ratio for 2013?

Market prospects are the ability to provide financial rewards sufficient to attract and retain financing.

Horizontal analysis is the comparison of a company's financial condition and performance to a base amount.