Exam 13: Analyzing and Interpreting Financial Statements

Express the following income statement information in common-size percents and in trend percents using 2010 as the base year.

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

The ability to meet short-term obligations and to efficiently generate revenues is called:

Corona Company's balance sheet accounts follow: At December 31 2011 2010 2009 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 \ 449,206 \ 385,680 \ 321,400 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 \4 49,206 \ 385,680 \ 321,400 What is Corona Company's inventory turnover ratio for 2011 assuming net sales and gross profit for the period were $1,236,783,$927,587 respectively?

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

Calculate the percent increase or decrease for each of the following financial statement items: Cash \ 37,500 \ 30,000 Accourits receivable 63,000 52,500 Inventory 67,500 90,000 Accounts payable 35,100 27,000 Sales 187,500 150,000 Equipment 165,000 125,000

If a company's activities include operations that are being discontinued,the income or loss effects of the discontinued operations are included on the income statement as part of income from continuing operations.

Express the following income statement information in common-size percents (round to nearest whole percent).Comment on the results. Thorsten Corp. Comparative Income Statement For Years Ended December 31,2011 and 2010 2011 2010 Sales \ 1,200,000 \ 1,000,000 Cost of goods sold Gross profit \ 396,000 \ 350,000 Selling expenses 132,000 120,000 Administrative expenses 180,000 150,000 Net income \ 84,000 \ 80,000

General-purpose financial statements include the (1)___________________, (2)___________________, (3)_____________________________, (4)________________________ and (5)_____________________________.

One of several ratios that reflects solvency includes the:

Guidelines (rules-of-thumb)are developed from:

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

A good financial statement analysis report usually includes the following six sections: (1)________________________, (2)______________________, (3)_________________, (4)__________________ (5)____________________ and (6)______________________.

A component of operating efficiency and profitability,calculated by expressing net income as a percent of net sales is equal to the:

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 \ 4,000 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

____________ is a method of analysis used to evaluate individual financial statement items or groups of items in terms of a specific base amount.

The following information is available for the McCartney Corporation: Sales \ 750,000 Cost of goods sold 450,000 Gross profit 300,000 Operating income 85,000 Net income 42,000 Inventory, beginning-year 71,200 Inventory, end-of-year 48,800 Calculate the company's inventory turnover and its days' sales in inventory.

External users of financial information:

The average number of times a company's inventory is sold during an accounting period,calculated by dividing cost of goods sold by the average inventory balance is equal to the:

A high level of expected risk suggests a low price-earnings ratio.