Question 1

Financial statement analysis is the application of analytical tools to general-purpose financial statements and related data for making business decisions.

Accepted Answer

A) True 
 B)False  True

Question 2

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

Accepted Answer

The purpose of financial statement analysis is to assist users in improving the quality of business decisions. The common analytical goals of financial statement users is to evaluate and/or assess a company's (1) past and current performance, (2) current financial position, (3) future performance and risk. External users want information to make decisions such as whether or not to invest in, or loan money to a company. Internal users, such as managers, use financial information to guide operating decisions involving their companies.

Question 3

Liquidity and efficiency are considered to be building blocks of financial statement analysis.

Accepted Answer

A) True 
 B)False  True

Question 4

Quick assets divided by current liabilities is the:

Accepted Answer

A)  Acid-test ratio. 
B)  Current ratio. 
C)  Working capital ratio. 
D)  Current liability turnover ratio. 
E)  Quick asset turnover ratio. 
A)  Acid-test ratio. 
B)  Current ratio. 
C)  Working capital ratio. 
D)  Current liability turnover ratio. 
E)  Quick asset turnover ratio.

Question 5

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

Accepted Answer

A)  Acid-test ratio. 
B)  Merchandise turnover. 
C)  Price earnings ratio. 
D)  Accounts receivable turnover. 
E)  Profit margin ratio. 
A)  Acid-test ratio. 
B)  Merchandise turnover. 
C)  Price earnings ratio. 
D)  Accounts receivable turnover. 
E)  Profit margin ratio.

Question 6

The current ratio is calculated as current liabilities divided by current assets.

Accepted Answer

A) True 
 B)False

Question 7

The measurement of key relationships between financial statement items is known as ___________________________.

Accepted Answer

The answer of The measurement of key relationships between financial...

Question 8

Measures taken from a selected competitor or a group of competitors are often excellent standards of comparison for analysis.

Accepted Answer

A) True 
 B)False

Question 9

A company's sales in Year 1 were $280,000, and its sales in Year 2 were $341,600. Using Year 1 as the base year, what is the sales trend percent for Year 2?

Accepted Answer

The answer of A company's sales in Year 1 were...

Question 10

The following selected financial information for a company was reported for the current year end. Calculate the following company ratios:
(a) Accounts receivable turnover.
(b) Inventory turnover.
(c) Days' sales uncollected.

Accepted Answer

The answer of The following selected financial information for a...

Question 11

The following summaries from the income statements and balance sheets of Neeko, Inc. and Saxony, Inc. are presented below.
(1) For both companies for 2012, compute the
(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 for 2012, compute the
(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?

Accepted Answer

The answer of The following summaries from the income statements...

Question 12

The comparison of a company's financial condition and performance across time is known as ______________________________.

Accepted Answer

The answer of The comparison of a company's financial condition...

Question 13

Phoenix Company reported sales of $400,000 for Year 1, $450,000 for Year 2, and $500,000 for Year 3. Using Year 1 as the base year, what were the percentage increases for Year 2 and Year 3 compared to the base year?

Accepted Answer

A)  80% for Year 2 and 90% for Year 3. 
B)  88% for Year 2 and 80% for Year 3. 
C)  88% for Year 2 and 90% for Year 3. 
D)  112.5% for Year 2 and 125% for Year 3. 
E)  125% for Year 2 and 112.5% for Year 3. 
A)  80% for Year 2 and 90% for Year 3. 
B)  88% for Year 2 and 80% for Year 3. 
C)  88% for Year 2 and 90% for Year 3. 
D)  112.5% for Year 2 and 125% for Year 3. 
E)  125% for Year 2 and 112.5% for Year 3.

Question 14

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.

Accepted Answer

A) True 
 B)False

Question 15

One of several ratios that reflects solvency includes the:

Accepted Answer

A)  Acid-test ratio. 
B)  Current ratio. 
C)  Times interest earned ratio. 
D)  Total asset turnover. 
E)  Days' sales in inventory. 
A)  Acid-test ratio. 
B)  Current ratio. 
C)  Times interest earned ratio. 
D)  Total asset turnover. 
E)  Days' sales in inventory.

Question 16

Refer to the following selected financial information from Hansen's, LLC. Compute the company's debt-to-equity ratio for Year 2.

Accepted Answer

A)  1.75. 
B)  2.34. 
C)  0.75. 
D)  1.34. 
E)  2.63. 
A)  1.75. 
B)  2.34. 
C)  0.75. 
D)  1.34. 
E)  2.63.

Question 17

The building blocks of financial statement analysis include (1) liquidity, (2) salability, (3) solvency, and (4) profitability.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

The answer of ____________ is a method of analysis used...

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

External users of financial information:

Accepted Answer

A)  Are those individuals involved in managing and operating the company. 
B)  Include internal auditors and consultants. 
C)  Are not directly involved in operating the company. 
D)  Make strategic decisions for a company. 
E)  Make operating decisions for a company. 
A)  Are those individuals involved in managing and operating the company. 
B)  Include internal auditors and consultants. 
C)  Are not directly involved in operating the company. 
D)  Make strategic decisions for a company. 
E)  Make operating decisions for a company.

Exam 17: Analysis of Financial Statements

Financial statement analysis is the application of analytical tools to general-purpose financial statements and related data for making business decisions.

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

Liquidity and efficiency are considered to be building blocks of financial statement analysis.

Quick assets divided by current liabilities is the:

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

The current ratio is calculated as current liabilities divided by current assets.

The measurement of key relationships between financial statement items is known as ___________________________.

Measures taken from a selected competitor or a group of competitors are often excellent standards of comparison for analysis.

A company's sales in Year 1 were $280,000, and its sales in Year 2 were $341,600. Using Year 1 as the base year, what is the sales trend percent for Year 2?

The following selected financial information for a company was reported for the current year end. Calculate the following company ratios: (a) Accounts receivable turnover. (b) Inventory turnover. (c) Days' sales uncollected.

The comparison of a company's financial condition and performance across time is known as ______________________________.

Phoenix Company reported sales of $400,000 for Year 1, $450,000 for Year 2, and $500,000 for Year 3. Using Year 1 as the base year, what were the percentage increases for Year 2 and Year 3 compared to the base year?

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.

One of several ratios that reflects solvency includes the:

Refer to the following selected financial information from Hansen's, LLC. Compute the company's debt-to-equity ratio for Year 2.

The building blocks of financial statement analysis include (1) liquidity, (2) salability, (3) solvency, and (4) profitability.

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

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

External users of financial information:

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets, Natural Resources, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Reporting the Statement of Cash Flows

Managerial Accounting Concepts and Principles

Job Order Cost Accounting

Process Cost Accounting

Cost Allocation and Performance Measurement

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Capital Budgeting and Managerial Decisions

Time Value of Money

Filters