Exam 13: Analyzing and Interpreting Financial Statements

Horizontal analysis:

A company's calendar-year financial data are shown below.The company has pledged all of its net plant assets as security for its long-term notes payable: Sales \ 650,000 Cost of goods sold Gross profit \ 227,500 Operating expenses Operating income Interest expense \ 77,900 Income before taxes 23,400 Income taxes \ 54,500 Net income \ 5,000 Ending Balances Cash \ 19,500 Accounts receivable (net) 65,000 Inventory 71,500 Plant assets (net) 195,000 Total assets \ 351,000 Current liabilities \ 74,100 Long-term notes payable 97,500 Common stock 65,000 Retained earnings Total liabilities and equity \ 351,000 Calculate the following ratios for this company: (a)Equity ratio. (b)Pledged assets to secured liabilities ratio. (c)Times interest earned.

Efficiency refers to how productive a company is in using its assets and is usually measured relative to how much revenue is generated from a certain level of assets.

Identify and explain the four building blocks of financial statement analysis.

Use the balance sheets of Sando shown below to calculate the following ratios for 2010 (round to the hundredths): (a)Current ratio. (b)Acid-test ratio. (c)Debt ratio. (d)Equity ratio. Sando Company Balance Sheets December 31,2010 Cash \ 43,000 Accounts receivable 38,000 Merchandise inventory 61,000 Prepaid insurance 6,000 Long-term investments 49,000 Plant assets (net) 218,000 Total assets \ 415,000 Liabilities and Equity: Current liabilities \ 62,000 Long-term liabilities 45,000 Common stock 150,000 Retained earnings Total liabilities and equity \ 415,000

Common-size statements:

A company has an inventory turnover ratio of 2.90,merchandise inventory for 2011 is $46,095,and cost of goods sold is $173,420.What is the average inventory?

A company had a market price of $83.12 per share,earnings per share of $4.87 and dividends per share of $5.40.Its price-earnings ratio is equal to:

The return on total assets ratio is a profitability measure.

Expropriation of property by a foreign government is considered an extraordinary item.

The 2011 income statement for Golden Company is shown below: Golden Compary Income Statements For the Year Ended December 31, 2011 Sales \ 720,000 Cost of goods sold 450,000 Gross profit \ 270,000 Operating expense 168,500 Income from operations \ 101,500 Interest expense 22,300 Income before taxes \ 79,200 Income taxes 28,000 Net income 51,200 Calculate the times interest earned ratio for 2011.

The ability to provide financial rewards sufficient to attract and retain financing is called:

A company has total assets of $5,600,482,common stock of 2,111,111,retained earnings of $1,058,473.What is the company's debt ratio?

The following are summaries from the Income Statements and Balance Sheets of Red Shoe,Inc.and Blue Shoe,Inc. Red Shoe, Inc. Consolidated Statement of Income May 31,2011 (in millions) Revenues \ 10,697.0 Cost of sales 6,313.6 Gross profit 4,383.4 Operating expenses 3,137.6 Operating income 1,245.8 Interest expense 42.9 Other revenues and expenses Income before tax 1,123.0 Income taxes 382.9 Income before effect of accounting change 740.1 Cumulative effect of accounting change, net of tax Net income \ 474.0 Blue Shoe, Inc Consolidated Statement of Income January 3, 2011 (in millions) Revenues \ 133.5 Cost of sales 87.3 Gross profit 46.2 Operating expenses 37.3 Operating income 8.9 Interest expense (0.1) Other revenues and expenses Income before tax 9.1 Income taxes 3.9 Net income \ 5.2 (1)For both companies compute the following ratios for 2011: (a)Current ratio (b)Acid-test ratio (c)Accounts receivable turnover (d)Inventory turnover (e)Days' sales in inventory (f)Days' sales uncollected Which company do you consider to be the better short-term credit risk? Explain. (2)For both companies compute the following ratios for 2011: (a)Profit margin ratio (b)Return on total assets (c)Return on common stockholders' equity Which company do you consider to have better profitability ratios?

A corporation reports the following year-end balance sheet data: Cash \ 40,000 Current liabilities \ 64,000 Accourts receivable 35,000 Lone-term liabilities 72,000 Irvventory 60,000 Corrmon stock 100,000 Equiprnent 150,000 Retaired earnings 49,000 Total assets \ 285,000 Total liabilities and equity \ 285,000 Calculate the corporation's current ratio and its acid-test ratio.

What are the standards for financial analysis comparison? Give examples of each.

Dividing ending inventory by cost of goods sold and multiplying the result by 365 is equal to the:

The following current year information is available from a manufacturing company: Sales \ 640,000 Gross profit on sales 276,000 Operating income 64,000 Income before taxes 44,000 Net income 33,600 Accounts Receivable, beginning-year 58,000 Accounts Receivable, end-of-year 70,000 Calculate the company's accounts receivable turnover and its days' sales uncollected.

The following selected company information was reported: Accourits receivable, begirning-year \ 170,000 Accourts receivable, year-end 190,000 Merchardise irventory, begirning-year 80,000 Merchardise irventory, year-end 60,000 Cost of goods sold 580,000 Credit sales 1,000,000 Calculate the following company ratios: (a)Accounts receivable turnover. (b)Inventory turnover. (c)Days' sales uncollected.

A company with a high inventory turnover requires a smaller investment in inventory than one producing the same sales with a lower turnover.