Deck 12: Financial Statement Analysis

Question 1

When an analyst compares a business with a similar business it is referred to as:

A)comparative analysis.
B)mentoring.
C)benchmarking.
D)idolizing.

Answer 1

benchmarking.

Question 2

Financial statement analysis indicates only that a problem may exist and offers clues as to what the problem might be.

Answer 2

True

Question 3

Financial analysis focuses on evaluating a company's past performance to predict its current performance.

Answer 3

False

Question 4

Comparing your company with a competing company in the same category of business is called benchmarking.

Question 5

Financial analysis is the process of using a company's financial information to evaluate whether or not the company is creating value.

Question 6

Kroger would probably benchmark with other:

A)general merchandise retailers.
B)big box retailers.
C)grocery chains.
D)companies that sell food.

Question 7

Financial analysis is used to predict the future of a business.

Question 8

Which of the following is NOT part of what a company's business model describes?

A)What products the company sells
B)How to increase the customer base
C)Who the company sells to
D)What the company does

Question 9

The purpose of financial analysis is to see how revenue changes over time.

Question 10

Keeping prices low is an example of a business strategy.

Question 11

The economic environment of a business describes how a business is affected by competitors.

Question 12

A business model describes what a business does, what it sells, and who it sells to.

Question 13

Net income belongs to a company's stockholders.

Question 14

Which of the following is NOT one of the steps in financial analysis?

A)Understanding the environment in which a business operates
B)Analyzing a business' operations
C)Preparing a business' financial statements
D)Understanding a business' model and strategy

Question 15

A company's business strategy describes:

A)what the business does.
B)how the business is affected by the overall economy.
C)who the business sells to.
D)how the business creates a competitive advantage.

Question 16

A business model deals with how a business makes customers want to buy their product.

Question 17

Evaluating whether a business is creating value is known as:

A)benchmarking.
B)financial analysis.
C)comparative analysis.
D)valuation.

Question 18

The management discussion and analysis is typically located after the financial statements in a company's annual report.

Question 19

The competitive environment of a business describes how a business competes for critical resources.

Question 20

A business's competitive environment describes:

A)how a business competes for critical resources.
B)how a business is affected by the overall economy.
C)how a business uses its business model to create a competitive advantage.
D)how a business makes its product.

Question 21

Operating profit (EBIT)is first used to pay dividends to a company's stockholders.

Question 22

A business's economic environment describes how a business:

A)competes for critical resources.
B)is affected by the overall economy.
C)creates a competitive advantage.
D)compares to similar companies in industry.

Question 23

Management discussion and analysis is:

A)part of a business's annual report.
B)prepared by the external auditors.
C)a summary of all the business's press releases for the year.
D)both A and B.

Question 24

The return on assets measures the relationship between sales and average total assets.

Question 25

The three ways to analyze financial statements are by using horizontal, vertical and ratio analysis.

Question 26

The most recent period in a horizontal analysis is called the base period.

Question 27

Return on equity measures the relationship between net income and average total assets.

Question 28

The base amounts for a vertical analysis are net income and total equity.

Question 29

Which of the following statements is TRUE regarding the results of financial statement analysis?

A)They can be found in the management discussion and analysis section of the financial statements.
B)They are most meaningful when compared to competitors in diverse industries.
C)They identify whether or not fraud has taken place.
D)They have limited value without a point of reference.

Question 30

Determining the percentage changes in line items on financial statements for two consecutive years is called horizontal analysis.

Question 31

In a vertical analysis, an item is selected as the base amount and all other items are computed as a percentage of the base amount.

Question 32

Horizontal analysis is only done on the Balance Sheet.

Question 33

In computing trend percentages, the most recent year amounts become the base and are always set to 100%.

Question 34

Most companies want a low inventory turnover ratio.

Question 35

The fixed asset turnover ratio measures a company's ability to generate sales using all of its assets.

Question 36

Knowing the dollar amount of change from year-to-year in an account is less relevant than knowing the percentage change.

Question 37

Which of the following is typically NOT one of the questions asked when analyzing a business' operations?

A)How is the business investing its money?
B)When was the business started?
C)Is the business a going concern?
D)Can the business pay its debt obligations?

Question 38

The formula for determining the percentage change in an account from one year to the next year is [(amount in later period - amount in earlier period)/ amount in earlier period] times 100.

Question 39

Common-size statements are useful when comparing a company's performance against that of a company of a different size.

Question 40

Computing trend percentages over a period of years helps to indicate the direction in which the business is going.

Question 41

Winters, Inc. has a cash balance of $78,000; short-term investments of $22,000; net receivables of $65,000; and inventory of $490,000. Current liabilities total $200,000. Winters' current ratio is: (Round your final answer to two decimal places.)

A)3.28 to 1.
B)2.95 to 1.
C)0.83 to 1.
D)0.72 to 1.

Question 42

Common-size statements use the same percentages that are computed during a vertical analysis, but no dollar amounts are shown.

Question 43

On the Income Statement, the results of discontinued operations are reported:

A)as part of other income (expense).
B)as part of operating income.
C)net of income tax or net of income tax savings.
D)before the operating income section.

Question 44

How a business uses its money to acquire assets is called the financing decision.

Question 45

When a company sells off part of the business, this would be reported on the Income Statement:

A)as a retrospective application.
B)in the discontinued operations section.
C)in the continuing operations section.
D)in the other income (expense)section.

Question 46

A(n)________ is a distinguishable part of a business that is subject to a different set of risks and returns than other parts of the business.

A)extraordinary event
B)business segment
C)product line
D)manufacturing line

Question 47

After income from continuing operations, the next section on an Income Statement is:

A)earnings per share data.
B)discontinued operations.
C)continuing operations.
D)other income (expense).

Question 48

Torres Company has $51,000 in cash; $8,000 in Accounts Receivable; $27,000 in short-term investments and $90,000 in merchandise inventory. The company also has $55,000 in current liabilities. The company's current ratio is: (Round your final answer to two decimal places.)

A)0.93.
B)1.56.
C)1.07.
D)3.20.

Question 49

The current ratio for a company with current assets of $79,000, quick assets of $43,000, total assets of $197,000 current liabilities of $64,000 and net sales of $95,000 would be: (Round your final answer to two decimal places.)

A)0.67.
B)3.08.
C)1.23.
D)0.59.

Question 50

Gains and losses on plant, property, and equipment are reported on the Income Statement:

A)as a retrospective application.
B)in the discontinued operations section.
C)in the continuing operations section.
D)in the financing section.

Question 51

Which section of the Income Statement is reported net of income taxes or net of income tax savings?

A)All sections are reported net of taxes.
B)Discontinued operations section
C)Continuing operations section
D)Other income (expense)section

Question 52

Return on equity shows how well the business is investing its money, and if it using its assets efficiently.

Question 53

The 2015 and 2016 balance sheets for Steele Electric showed Cash of $6500 and $8000 respectively, Accounts Receivable of $17,000 and $20,000, respectively, Inventory of $12,500 and $9500, respectively, and Accounts Payable of $4700 and $7700, respectively. Its 2016 Income Statement showed Net Sales of $120,000, Cost of Goods Sold of $59,000, and Net Income of $33,000. The cash conversion cycle for 2016 was: (Assume all Sales are credit sales. Round any intermediary calculations to two decimal places and your final answer to the nearest day.)

A)50 days.
B)68 days.
C)86 days.
D)27 days.

Question 54

The 2015 and 2016 balance sheets for Shadow Industries showed Cash of $7,600 and $9,100 respectively, Accounts Receivable of $16,000 and $18,000, respectively, Inventory of $11,000 and $8,000, respectively, and Accounts Payable of $5,300 and $7,300, respectively. Its 2016 Income Statement showed Net Sales of $103,000, Cost of Goods Sold of $65,000, and Net Income of $30,000. The cash conversion cycle for 2016 was: (Assume all Sales are credit sales. Round any intermediary calculations to two decimal places and your final answer to the nearest day.)

A)149 days.
B)28 days.
C)42 days.
D)78 days.

Question 55

The goal of the investing decision is to obtain money at the lowest possible cost.

Question 56

The net working capital for a company with current assets of $69,000, quick assets of $32,000 total assets of $130,000, current liabilities of $48,000 and net sales of $82,000 would be:

A)$101,000.
B)$53,000.
C)$13,000.
D)$21,000.

Question 57

Other income (such as rental income)and other expenses (such as interest expense)are listed on the Income Statement immediately after:

A)gross profit.
B)operating expenses.
C)operating income.
D)income tax expense.

Question 58

The net working capital for a company with current assets of $77,000, quick assets of $46,000, total assets of $187,000 current liabilities of $65,000 and net sales of $91,000 would be:

A)$58,000.
B)$26,000.
C)$12,000.
D)$122,000.

Question 59

Everyday business activities are reported in the Income Statement's:

A)continuing and discontinued operations section.
B)discontinued operations section.
C)continuing operations section.
D)extraordinary items section.

Question 60

Predictions about a company's future earnings can best be inferred from the Income Statement's:

A)earnings per share data.
B)discontinued operations section.
C)continuing operations section.
D)other income (expense)section.

Question 61

Betta, Inc. reported $23,800 in A/R in 2016 and $25,200 in A/R in 2015. The percentage change in A/R from 2015 to 2016 was: (Round your final answer to two decimal places, X.XX%.)

A)+5.56%.
B)+5.88%.
C) -5.56%.
D) -5.88%.

Question 62

Illusions, Inc. has current assets of $52,000, long-term assets of $262,700, current liabilities of $42,600, and long-term debt of $154,700. Illusions' debt ratio is: (Round your final answer to two decimal places, X.XX%.)

A)75.1%.
B)49.16%.
C)62.69%.
D)58.89%.

Question 63

Danio's Diagnostics had a loss from discontinued operations of $130,000. If their corporate tax rate is 40%, at what amount will the loss be shown on the Income Statement?

A)$130,000
B)$78,000
C)$52,000
D)Not enough information is given to answer the question.

Question 64

Crowne Cottages, Inc. has current assets of $44,000, long-term assets of $250,900, current liabilities of $42,600, and long-term debt of $156,700. Crowne's debt ratio is: (Round your final answer to two decimal places, X.XX%.)

A)62.46%.
B)67.58%.
C)53.14%.
D)79.43%.

Question 65

If cash is $4,170 in 2016 and $3,370 in 2015, what is the percent increase or decrease from 2015 to 2016? (Round your final answer to two decimal places, X.XX%.)

A)+0.81%.
B)+23.74%.
C)-1.24%.
D)+19.18%.

Question 66

Which analysis deals with the percentage of changes in certain items over a period of years?

A)Horizontal analysis
B)Vertical analysis
C)Incremental analysis
D)Trend analysis

Question 67

The revenue of Lionworks, Inc. for the years 2014, 2015, and 2016 are $79,000, $96,000 and $197,000, respectively. If 2014 is the base year, the trend percentage for 2015 is: (Round your final answer to two decimal places, X.XX%.)

A)21.52%.
B)100.00%.
C)121.52%.
D)(59.90%).

Question 68

TNT Guitar's sales were $13,100 in 2016 and $11,600 in 2015. The percentage change in TNT's sales from 2015 to 2016 was: (Round your final answer to two decimal places, X.XX%.)

A)+11.45%.
B) -12.93%.
C)+12.93%.
D)-11.45%.

Question 69

A comparison of the amounts for the same item in the financial statements of two or more periods is called:

A)vertical analysis.
B)comparative analysis.
C)horizontal analysis.
D)trend analysis.

Question 70

If current assets were $101,000 in 2015 and $91,000 in 2016, what was the amount of increase or decrease in percentage terms from 2015 to 2016? (Round your final answer to two decimal places, X.XX%.)

A)Increase of 11%
B)Decrease of 11%
C)Increase of 10%
D)Decrease of 10%

Question 71

Net income was $48,000 in 2015 and $60,000 in 2016. The percentage increase or decrease in net income from 2015 to 2016 was: (Round your final answer to two decimal places, X.XX%.)

A)+25.00%.
B)+125.00%.
C)-20.00%.
D)-25.00%.

Question 72

Wolfe Supply Co. sells hiking and other outdoor equipment. It also sells a few trail books and outdoor guides about the area. In their Income Statement, the revenue from the books and guides would probably be recorded as:

A)operating income.
B)other income.
C)other expenses.
D)extraordinary income.

Question 73

Winter Coffee's cash reported on the comparative Balance Sheet was $236,000 in 2015 and $246,000 in 2016. The percentage change in cash from 2015 to 2016 was: (Round your final answer to two decimal places, X.XX%.)

A)+4.07%.
B)+4.24%.
C) -4.24%.
D) -4.07%.

Question 74

Woods, Inc. reported Net Sales of $326,000, Cost of Goods Sold of $188,600, Operating Expenses of $59,900, and Income Tax Expense of $9300. Woods' net income percentage was: (Round your final answer to two decimal places, X.XX%.)

A)42.15%.
B)20.92%.
C)57.85%.
D)23.77%.

Question 75

Spirit's Signs reported Net Sales of $261,000, Cost of Goods Sold of $109,500, Operating Expenses of $62,400, and Income Tax Expense of 21,500. Spirit's net income percentage was: (Round your final answer to two decimal places, X.XX%.)

A)34.14%.
B)41.95%.
C)58.05%.
D)25.9%.

Question 76

What was the percentage of change in Accounts Receivable if the balance was $80,000 in 2015 and $59,000 in 2016? (Round your final answer to two decimal places, X.XX%.)

A)-26.25%.
B)+26.25%.
C)-35.59%.
D)+35.59%.

Question 77

Dolly's Diamonds reported Net Sales of $254,000, Cost of Goods Sold of $107,500, Operating Expenses of $60,400, and Income Tax Expense of $21,600. Dolly's gross profit margin percentage was: (Round your final answer to two decimal places, X.XX%.)

A)33.9%.
B)42.32%.
C)57.68%.
D)25.39%.

Question 78

Ironworks, Inc. has cost of goods sold for the years 2016, 2015 and 2014 respectively of $28,400, $26,400 and $25,100. If 2014 is the base year, the trend percentage for 2016 is: (Round your final answer to two decimal places, X.XX%.)

A)113.15%.
B)13.15%.
C)105.18%.
D)5.18%.

Question 79

Raven Industries reported Net Sales of $296,000, Cost of Goods Sold of $196,600, Operating Expenses of $57,900, and Income Tax Expense of 15,300. Raven Industries' gross profit margin percentage was: (Round your final answer to two decimal places, X.XX%.)

A)33.58%.
B)8.85%.
C)66.42%.
D)14.02%.

Question 80

The sales of Sassycat, Inc. for the years 2014, 2015, and 2016 are $36,000, $59,000 and $76,000, respectively. If 2014 is the base year, the trend percentage for 2015 is: (Round your final answer to two decimal places, X.XX%.)

A)61.02%.
B)163.89%.
C)211.11%.
D)128.81%.