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Deck 18: Financial Statement Analysis

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Question
The profit for a company was $540 000 this year and $630 000 last year.Profit decreased by 17%.
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Question
Please refer to the vertical analysis of income statement data shown below: 20172016 Rollar amounts in millions)  Amount % of total  Amount  % of total  Revenues $6355100.0%$4920100.0% Cost of sales 337053.0%220044.7% Gross profit $298547.0%$272055.3% Expenses: Sales and marketing expense $67510.6%$58011.8% General and  administrative expense 4106.5%4258.6% Research and  development expense 4707.4%3907.9% Other expense 4006.3%69514.1% Total expenses $195530.8%$209042.5% Profit before tax $103016.2%$63012.8% Income tax expense 2303.6%2104.3% Profit (loss) $80012.6%$4208.5%\begin{array}{|l|r|r|r|r|}\hline & 2017 & & 2016 & \\\hline \text { Rollar amounts in millions) } & \text { Amount } & \% \text { of total } & \text { Amount } & \text { \% of total } \\\hline \text { Revenues } & \$ 6355 & 100.0 \% & \$ 4920 & 100.0 \%\\\hline \text { Cost of sales } & 3370 & 53.0 \% & 2200 & 44.7 \% \\\hline \text { Gross profit } & \$ 2985 & 47.0 \% & \$ 2720 & 55.3 \% \\\hline \text { Expenses: } & & & & \\\hline\text {Sales and marketing expense }&\$ 675 & 10.6 \% & \$ 580 & 11.8 \% \\\hline\text { General and } & & \\\text { administrative expense } & 410 & 6.5 \%&425&8.6\%\\\hline \text { Research and } & & \\\text { development expense } & 470 & 7.4 \%&390&7.9\% \\\hline \text { Other expense } & 400 & 6.3 \% & 695 & 14.1 \% \\\hline \text { Total expenses } & \$ 1955 & 30.8 \% & \$ 2090 & 42.5 \% \\\hline & & & & \\\hline \text { Profit before tax } & \$ 1030 & 16.2 \% & \$ 630 & 12.8 \% \\\hline \text { Income tax expense } & 230 & 3.6 \% & 210 & 4.3 \% \\\hline \text { Profit (loss) } & \$ 800 & 12.6 \% & \$ 420 & 8.5 \% \\\hline\end{array} The figure 47.0% shown for Gross profit in 2017 signifies that:

A)in 2017,gross profit is 47% of cost of sales.
B)in 2017,gross profit is equal to 47% of profit.
C)in 2017,gross profit is up 47% versus the previous year.
D)in 2017,gross profit is 47% of revenues.
Question
The following is a summary of information presented on the financial statements of a company on 31 December 2017.  Account 20172016 Sales revenue $603,000$500,000 Cost of sales 454,000401,000 Gross profit $149,000$99,000 Selling expenses 55,000$4,000 Profit before income tax $94,000$45,000 Income tax expense 39,00019,000 Profit $55,000$26,000\begin{array}{|l|l|l|}\hline\text { Account } & 2017 & 2016 \\\hline \text { Sales revenue } & \$ 603,000 & \$ 500,000 \\\hline \text { Cost of sales } & 454,000 & 401,000 \\\hline \text { Gross profit } & \$ 149,000 & \$ 99,000 \\\hline \text { Selling expenses } & 55,000 & \$ 4,000 \\\hline \text { Profit before income tax } & \$ 94,000 & \$ 45,000 \\\hline \text { Income tax expense } & 39,000 & 19,000 \\\hline \text { Profit } & \$ 55,000 & \$ 26,000 \\\hline\end{array} What would a horizontal analysis report show with respect to Profit?

A)a 89.66% increase in Profit
B)a 111.54% increase in Profit
C)a $26,000 increase in Profit
D)both Profit before income tax and Profit are 89.66% of Sales revenue
Question
Which of the following BEST describes horizontal analysis?

A)Showing each figure as a percentage of some other amount,such as total assets
B)Comparing a company's financial figures with other companies that are leaders
C)Comparing figures year to year
D)Calculating key ratios to evaluate performance
Question
If an analyst wishes to see how sales revenue of a company has changed from one year to the next,which of the following types of financial statement analysis would be used?

A)Ratio analysis
B)Horizontal analysis
C)Common-size financial statement analysis
D)Vertical analysis
Question
Horizontal analysis compares each item in the income statement to the net sales amount.
Question
The trend analysis report of Doppler Ltd is given below:  (in millions) 20202019201820172016 Profit $680$604$458$407$399 Trend percentages 170151115102100\begin{array} { | l | l | l | l | l | l | } \hline \text { (in millions) } & 2020 & 2019 & 2018 & 2017 & 2016 \\\hline \text { Profit } & \$ 680 & \$ 604 & \$ 458 & \$ 407 & \$ 399 \\\hline \text { Trend percentages } & 170 & 151 & 115 & 102 & 100 \\\hline\end{array} Which of the following is a correct conclusion from the above analysis?

A)Profit for the year 2019 decreased by 151% from 2018.
B)Profit for the year 2020 is 170% of that for the year 2016.
C)Profit for the year 2019 is 151% of the previous year.
D)Profit for the year 2020 increased by 170% from 2019.
Question
The following is a summary of information presented on the financial statements of a company on 31 December 2017.  Account 20172016 Current assets $82,000$70,000 Accounts receivable 63,00071,000 Inventory 62,00055,000 Current liabilities 56,00047,000 Non-current liabilities 42,00055,000 Share capital 75,00054,000 Retained earnings 66,00044,000\begin{array}{|l|l|l|}\hline\text { Account } &{2017} & 2016 \\\hline \text { Current assets } & \$ 82,000 & \$ 70,000 \\\hline \text { Accounts receivable } & 63,000 & 71,000 \\\hline \text { Inventory } & 62,000 & 55,000 \\\hline \text { Current liabilities } & 56,000 & 47,000 \\\hline \text { Non-current liabilities } & 42,000 & 55,000 \\\hline \text { Share capital } & 75,000 & 54,000 \\\hline \text { Retained earnings } & 66,000 & 44,000\\\hline\end{array} What would a horizontal analysis report show with respect to Non-current liabilities?

A)Non-current liabilities decreased by $21,000
B)Non-current liabilities decreased by 38.89%
C)Non-current liabilities decreased by $9000
D)Non-current liabilities decreased by 23.64%
Question
If an analyst wishes to see how gross profit of a company has changed from one year to the next,vertical analysis would be the best approach.
Question
Please refer to the vertical analysis of income statement data shown below: 20172016 Rollar amounts in millions)  Amount % of total  Amount  % of total  Revenues $6355100.0%$4920100.0% Cost of sales 337053.0%220044.7% Gross profit $298547.0%$272055.3% Expenses: Sales and marketing expense $67510.6%$58011.8% General and  administrative expense 4106.5%4258.6% Research and  development expense 4707.4%3907.9% Other expense 4006.3%69514.1% Total expenses $195530.8%$209042.5% Profit before tax $103016.2%$63012.8% Income tax expense 2303.6%2104.3% Profit (loss) $80012.6%$4208.5%\begin{array}{|l|r|r|r|r|}\hline & 2017 & & 2016 & \\\hline \text { Rollar amounts in millions) } & \text { Amount } & \% \text { of total } & \text { Amount } & \text { \% of total } \\\hline \text { Revenues } & \$ 6355 & 100.0 \% & \$ 4920 & 100.0 \%\\\hline \text { Cost of sales } & 3370 & 53.0 \% & 2200 & 44.7 \% \\\hline \text { Gross profit } & \$ 2985 & 47.0 \% & \$ 2720 & 55.3 \% \\\hline \text { Expenses: } & & & & \\\hline\text {Sales and marketing expense }&\$ 675 & 10.6 \% & \$ 580 & 11.8 \% \\\hline\text { General and } & & \\\text { administrative expense } & 410 & 6.5 \%&425&8.6\%\\\hline \text { Research and } & & \\\text { development expense } & 470 & 7.4 \%&390&7.9\% \\\hline \text { Other expense } & 400 & 6.3 \% & 695 & 14.1 \% \\\hline \text { Total expenses } & \$ 1955 & 30.8 \% & \$ 2090 & 42.5 \% \\\hline & & & & \\\hline \text { Profit before tax } & \$ 1030 & 16.2 \% & \$ 630 & 12.8 \% \\\hline \text { Income tax expense } & 230 & 3.6 \% & 210 & 4.3 \% \\\hline \text { Profit (loss) } & \$ 800 & 12.6 \% & \$ 420 & 8.5 \% \\\hline\end{array} The figure 8.5% shown for profit in 2016 signifies that:

A)in 2016,Profit is equal to 8.5% times Profit before tax.
B)in 2016,Profit is equal to 8.5% of Revenues.
C)in 2016,Profit is up 8.5% versus the previous year.
D)in 2016,Profit is 8.5% of Gross profit.
Question
Investors and creditors generally evaluate a company by using one year's data.
Question
The following is a summary of information presented on the financial statements of a company on 31 December 2017.  Account 20172016 Sales revenue $603,000$502,000 Cost of sales 450,000403,000 Gross profit 153,00099,000 Selling expenses 52,00052,000 Profit before income tax 101,00047,000 Income tax expense 37,00024,000 Profit $64,000$23,000\begin{array}{|l|l|l|}\hline\text { Account } &{2017} & 2016 \\\hline \text { Sales revenue } & \$ 603,000 & \$ 502,000 \\\hline \text { Cost of sales } & 450,000 & 403,000 \\\hline \text { Gross profit } & 153,000 & 99,000 \\\hline \text { Selling expenses } & 52,000 & 52,000 \\\hline \text { Profit before income tax } & 101,000 & 47,000 \\\hline \text { Income tax expense } & 37,000 & 24,000 \\\hline \text { Profit } & \$ 64,000 & \$ 23,000\\\hline\end{array} What would a horizontal analysis report show with respect to Sales revenue?

A)a decrease of $47,000 in Sales revenue
B)an increase of $47,000 in Sales revenue
C)a 20.12% increase in Sales revenue
D)a 239.04% decrease in Sales revenue
Question
Which of the following is the base amount when performing vertical analysis of an income statement?

A)Sales revenue
B)Gross profit
C)Net sales
D)Total expenses
Question
The following is a summary of information presented on the financial statements of a company on 31 December 2017.  Account 20172016 Current assets $68,000$52,000 Accounts receivable 34,00030,000 Inventory 52,00041,000 Current liabilities 76,00049,000 Non-current liabilities 32,00055,000 Share capital 51,00042,000 Retained earnings 45,00027,000 Sales revenue $526,000$501,000 Cost of sales 402,000400,000 Gross profit $124,000$101,000 Selling expenses 47,000$1,000 Profit before income tax $77,000$50,000 Income tax expense 24,000$16,900 Profit $53,000$33,100\begin{array}{|l|c|c|}\hline\text { Account } & 2017 & 2016 \\\hline \text { Current assets } & \$ 68,000 & \$ 52,000 \\\hline \text { Accounts receivable } & 34,000 & 30,000 \\\hline \text { Inventory } & 52,000 & 41,000 \\\hline \text { Current liabilities } & 76,000 & 49,000 \\\hline \text { Non-current liabilities } & 32,000 & 55,000 \\\hline \text { Share capital } & 51,000 & 42,000 \\\hline \text { Retained earnings } & 45,000 & 27,000\\\hline \\\hline \text { Sales revenue } & \$ 526,000 & \$ 501,000 \\\hline \text { Cost of sales } & 402,000 & 400,000 \\\hline \text { Gross profit } & \$ 124,000 & \$ 101,000 \\\hline \text { Selling expenses } & 47,000 & \$ 1,000 \\\hline \text { Profit before income tax } & \$ 77,000 & \$ 50,000 \\\hline \text { Income tax expense } & 24,000 & \$ 16,900 \\\hline \text { Profit } & \$ 53,000 & \$ 33,100 \\\hline \end{array} What would a horizontal analysis report show with respect to Current liabilities?

A)a 55.1% increase in Current liabilities
B)a 35.53% increase in Current liabilities
C)a current ratio of 0.89
D)Current liabilities are 37.25% of total capital
Question
If an analyst wishes to see how a company's selling and general expenses as a percentage of net sales have changed from one year to the next,which of the following types of financial statement analysis would be used?

A)Common-size financial statement analysis
B)Horizontal analysis
C)Ratio analysis
D)Vertical analysis
Question
Which of the following BEST describes trend analysis?

A)Showing each figure as a percentage of some other amount,such as total assets
B)Showing each year's figures as a percentage of amounts for a base year
C)Comparing a company's financial figures with other companies that are leaders
D)Calculating key ratios to evaluate performance
Question
If an analyst wishes to see how selling and general expenses of a company have changed from one year to the next,using a horizontal analysis would be the best approach.
Question
Which of the following is the definition of vertical analysis?

A)Vertical analysis is the analysis in which percentages are computed by selecting a base year as 100% and expressing amounts for following years as a percentage of the base amount.
B)Vertical analysis is the practice of comparing a company with other companies that are leaders.
C)Vertical analysis is the study of percentage changes in comparative financial statements.
D)Vertical analysis is the analysis of a financial statement that reveals the relationship of each statement item to a specified base,which is the 100% figure.
Question
Which of the following is the base amount when performing vertical analysis of a balance sheet?

A)Gross profit
B)Profit
C)Total cash and cash equivalents
D)Total assets
Question
The trend analysis report of Doppler Ltd is given below:  (in millions) 20202019201820172016 Profit $670$602$460$407$402 Trend percentages 167150114101100\begin{array}{|l|l|l|l|l|l|}\hline\text { (in millions) } & 2020 & 2019 & 2018 & 2017 & 2016 \\\hline \text { Profit } & \$ 670 & \$ 602 & \$ 460 & \$ 407 & \$ 402 \\\hline \text { Trend percentages } & 167 & 150 & 114 & 101 & 100\\\hline\end{array} Which of the following is a correct conclusion from the above analysis?

A)Profit for the year 2018 has decreased by 14% over that for the year 2016.
B)Profit for the year 2018 has increased by 14% over that for the year 2016.
C)Profit for the year 2018 has decreased by 114% over that for the year 2016.
D)Profit for the year 2018 has increased by 114% over that for the year 2016.
Question
In a vertical analysis of the income statement,each line item is shown as a percentage of gross profit.
Question
If you are comparing your company's results with those of other companies in the industry,the process is called:

A)a horizontal analysis.
B)a trend analysis.
C)sensitivity analysis.
D)benchmarking.
Question
Please refer to the following data: 20172016 Rollar amounts in millions)  Amount % of total  Amount  % of total  Revenues $6355100.0%$4920100.0% Cost of sales 337053.0%220044.7% Gross profit $298547.0%$272055.3% Expenses: Sales and marketing expense $67510.6%$58011.8% General and  administrative expense 4106.5%4258.6% Research and  development expense 4707.4%3907.9% Other expense 4006.3%69514.1% Total expenses $195530.8%$209042.5% Profit before tax $103016.2%$63012.8% Income tax expense 2303.6%2104.3% Profit (loss) $80012.6%$4208.5%\begin{array}{|l|r|r|r|r|}\hline & 2017 & & 2016 & \\\hline \text { Rollar amounts in millions) } & \text { Amount } & \% \text { of total } & \text { Amount } & \text { \% of total } \\\hline \text { Revenues } & \$ 6355 & 100.0 \% & \$ 4920 & 100.0 \%\\\hline \text { Cost of sales } & 3370 & 53.0 \% & 2200 & 44.7 \% \\\hline \text { Gross profit } & \$ 2985 & 47.0 \% & \$ 2720 & 55.3 \% \\\hline \text { Expenses: } & & & & \\\hline\text {Sales and marketing expense }&\$ 675 & 10.6 \% & \$ 580 & 11.8 \% \\\hline\text { General and } & & \\\text { administrative expense } & 410 & 6.5 \%&425&8.6\%\\\hline \text { Research and } & & \\\text { development expense } & 470 & 7.4 \%&390&7.9\% \\\hline \text { Other expense } & 400 & 6.3 \% & 695 & 14.1 \% \\\hline \text { Total expenses } & \$ 1955 & 30.8 \% & \$ 2090 & 42.5 \% \\\hline & & & & \\\hline \text { Profit before tax } & \$ 1030 & 16.2 \% & \$ 630 & 12.8 \% \\\hline \text { Income tax expense } & 230 & 3.6 \% & 210 & 4.3 \% \\\hline \text { Profit (loss) } & \$ 800 & 12.6 \% & \$ 420 & 8.5 \% \\\hline\end{array} Which of the following statements is a valid conclusion based on this data?

A)Profit in 2017 increased 12.6% over the prior year.
B)Profit in 2017 went down because gross profit as a percentage of sales revenue declined over the two year period.
C)Profitability in 2017 improved greatly,as profit increased significantly as a percentage of sales revenue.
D)Profitability in 2017 took a dive as selling and general expenses increased by 30.8%.
Question
Please refer to the partial balance sheet data provided below:  (Dollar amounts in millions) 20172016 Amount % of total  Amount % of total  Liabilities  Current liabilities  Accounts payable $85003.1%$73002.9% Other current liabilities 14000.5%39001.6% Total current liabilities 99003.6%112004.5% Long-term loans payable 5400019.7%3000012.0% Total liabilities $6390023.4%$4120016.5% Shareholders’ equity  Share capital 16100058.9%16100064.4% Retained earnings 4870017.8%4790019.2% Total shareholders’ equity $20970076.6%$20890083.5% Total liabilities and shareholder’s’ equity $273600100.0%$250100100.0%\begin{array}{|l|c|c|c|c|}\hline \text { (Dollar amounts in millions) } & 2017 & & 2016 & \\\hline & \text { Amount } & \% \text { of total } & \text { Amount } & \% \text { of total } \\\hline{\text { Liabilities }} & \\\hline \text { Current liabilities } & \\\hline \text { Accounts payable } & \$ 8500 & 3.1 \% & \$ 7300 & 2.9 \% \\\hline \text { Other current liabilities } & 1400 & 0.5 \% & 3900 & 1.6 \% \\\hline \text { Total current liabilities } & 9900 & 3.6 \% & 11200 & 4.5 \% \\\hline \text { Long-term loans payable } & 54000 & 19.7 \% & 30000 & 12.0 \% \\\hline \text { Total liabilities } & \$ 63900 & 23.4 \% & \$ 41200 & 16.5 \% \\\hline \text { Shareholders' equity } \\\hline \text { Share capital } & 161000 & 58.9 \% & 161000 & 64.4 \% \\\hline \text { Retained earnings } & 48700 & 17.8 \% & 47900 & 19.2 \% \\\hline \text { Total shareholders' equity } & \$ 209700 & 76.6 \% & \$ 208900 & 83.5 \% \\\hline \text { Total liabilities and shareholder's' equity } & \$ 273600 & 100.0 \% & \$ 250100 & 100.0 \% \\\hline\end{array} Which of the following would be a valid conclusion from the above data?

A)Shareholders' equity,as a percentage of total liabilities and shareholders' equity,declined over a two year period.
B)Shareholders' equity declined to 76.6% of net sales in 2017.
C)Shareholders' equity was up 76.6% over a two year period.
D)Shareholders' equity was equal to 76.6% of total liabilities in 2017.
Question
Please refer to the vertical analysis of a section of a balance sheet,shown below:  (Dollar amounts in millions) 20172016 Amount % of total  Amount % of total  Assets  Current assets:  Cash $100003.7%$72002.9% Accounts receivable, net 156005.7%168006.7% Inventory 3800013.9%3100012.4% Total current assets 6360023.2%5500022.0% Property, plant and equipment, net 19500071.3%16800067.2% Other non-current assets 150005.5%2710010.8% Total assets $273600100.0%$250100100.0%\begin{array}{|c|c|c|c|c|}\hline \text { (Dollar amounts in millions) } & 2017 & & 2016 & \\\hline & \text { Amount } & \% \text { of total } & \text { Amount } & \% \text { of total } \\\hline \text { Assets } & & & & \\\hline \text { Current assets: } & & & & \\\hline \text { Cash } & \$ 10000 & 3.7 \% & \$ 7200 & 2.9 \% \\\hline \text { Accounts receivable, net } & 15600 & 5.7 \% & 16800 & 6.7 \% \\\hline \text { Inventory } & 38000 & 13.9 \% & 31000 & 12.4 \% \\\hline \text { Total current assets } & 63600 & 23.2 \% & 55000 & 22.0 \% \\\hline \text { Property, plant and equipment, net } & 195000 & 71.3 \% & 168000 & 67.2 \% \\\hline \text { Other non-current assets } & 15000 & 5.5 \% & 27100 & 10.8 \% \\\hline \text { Total assets } & \$ 273600 & 100.0 \% & \$ 250100 & 100.0 \% \\\hline\end{array} Which of the following statements accurately describes the data shown for total current assets?

A)In 2017,current assets grew by 23.2% compared to 2016.
B)In 2017,current assets as a percentage of total assets declined over the previous year.
C)Current assets grew as a percentage of total assets over the two year period.
D)Current assets are equal to 23.2% of net sales in 2017.
Question
If an analyst wishes to compare several different companies that vary in size,which of the following types of financial statement analysis would be used?

A)Common-size financial statement analysis
B)Vertical analysis
C)Horizontal analysis
D)Ratio analysis
Question
The Arlington Company prepared a common-size income statement to compare its results with its key competitor,Bardo Company.Please refer to the following data:  Arlington Co.  Bardo Co.  Revenues 100.0%100.0% Cost of sales 42.1%47.8% Gross profit 57.9%52.2% Selling and general expenses:  Sales and marketing expense 26.3%8.6% General and administrative expense 12.0%10.8% Research and development expense 4.1%10.2% Total selling and general expenses 42.4%29.6% Profit before tax 15.5%22.6% Income tax expense 3.3%5.8% Profit (loss) 12.2%16.8%\begin{array}{|l|r|r|} \hline& \text { Arlington Co. } &{\text { Bardo Co. }} \\\hline \text { Revenues } & 100.0 \% & 100.0 \% \\\hline \text { Cost of sales } & 42.1 \% & 47.8 \% \\\hline \text { Gross profit } & 57.9 \% & 52.2 \% \\\hline \text { Selling and general expenses: } & &\\\hline \text { Sales and marketing expense } & 26.3 \% & 8.6 \% \\\hline \text { General and administrative expense } & 12.0 \% & 10.8 \% \\\hline \text { Research and development expense } & 4.1 \% & 10.2 \% \\\hline \text { Total selling and general expenses } & 42.4 \% & 29.6 \% \\\hline & & \\\hline \text { Profit before tax } & 15.5 \% & 22.6 \% \\\hline \text { Income tax expense } & 3.3 \% & 5.8 \% \\\hline \text { Profit (loss) } & 12.2 \% & 16.8 \% \\\hline\end{array} Which of the following statements can be correctly concluded from the above data?

A)Bardo places a higher priority on research and development than Arlington.
B)Bardo's total selling and general expenses are lower than Arlington's.
C)Bardo produces higher gross profit per dollar of sales than Arlington.
D)Bardo Company produced higher total profit than Arlington.
Question
Vertical analysis is used with the income statement,but not with the balance sheet.
Question
Please refer to the partial balance sheet data provided below:  (Dollar amounts in millions) 20172016 Amount % of total  Amount % of total  Liabilities  Current liabilities  Accounts payable $85003.1%$73002.9% Other current liabilities 14000.5%39001.6% Total current liabilities 99003.6%112004.5% Long-term loans payable 5400019.7%3000012.0% Total liabilities $6390023.4%$4120016.5% Shareholders’ equity  Share capital 16100058.9%16100064.4% Retained earnings 4870017.8%4790019.2% Total shareholders’ equity $20970076.6%$20890083.5% Total liabilities and shareholder’s’ equity $273600100.0%$250100100.0%\begin{array}{|l|c|c|c|c|}\hline \text { (Dollar amounts in millions) } & 2017 & & 2016 & \\\hline & \text { Amount } & \% \text { of total } & \text { Amount } & \% \text { of total } \\\hline{\text { Liabilities }} & \\\hline \text { Current liabilities } & \\\hline \text { Accounts payable } & \$ 8500 & 3.1 \% & \$ 7300 & 2.9 \% \\\hline \text { Other current liabilities } & 1400 & 0.5 \% & 3900 & 1.6 \% \\\hline \text { Total current liabilities } & 9900 & 3.6 \% & 11200 & 4.5 \% \\\hline \text { Long-term loans payable } & 54000 & 19.7 \% & 30000 & 12.0 \% \\\hline \text { Total liabilities } & \$ 63900 & 23.4 \% & \$ 41200 & 16.5 \% \\\hline \text { Shareholders' equity } \\\hline \text { Share capital } & 161000 & 58.9 \% & 161000 & 64.4 \% \\\hline \text { Retained earnings } & 48700 & 17.8 \% & 47900 & 19.2 \% \\\hline \text { Total shareholders' equity } & \$ 209700 & 76.6 \% & \$ 208900 & 83.5 \% \\\hline \text { Total liabilities and shareholder's' equity } & \$ 273600 & 100.0 \% & \$ 250100 & 100.0 \% \\\hline\end{array} Which of the following is a valid conclusion from the above data?

A)The company relied heavily on retained earnings to finance asset growth in 2017.
B)Current asset and current liability data suggest a liquidity problem in 2017.
C)The company shifted towards greater debt financing and less equity financing over the two year period.
D)The balance in Retained earnings declined over a two year period.
Question
Which of the following is the definition of benchmarking?

A)Benchmarking is the analysis of a financial statement that shows each item as a percentage of net sales or total assets.
B)Benchmarking is the comparison of two companies using horizontal analysis.
C)Benchmarking is the study of percentage changes in financial statement line items year to year.
D)Benchmarking is the practice of comparing a company with other companies in that industry.
Question
Oglethorpe Company reports the following information from the vertical analysis of their income statement: Profit:
4.2 % in 2017
3.9% in 2016
Which of the following statements could be logically concluded from the above data?

A)The company's total profit increased by 0.3% in 2017.
B)The company has improved the profit they make per dollar of sales in 2017.
C)The company made higher profit in 2017 than in 2016.
D)The company made a higher gross profit in 2017 than in 2016.
Question
Oglethorpe Company reports the following information from the vertical analysis of their balance sheet: Current assets:
23.5 % in 2017
23.9% in 2016
Which of the following statements could be logically concluded from the above data?

A)The company's ability to pay current liabilities declined.
B)The company's current ratio declined.
C)The company's total current assets declined by 0.4%.
D)The company's current assets declined in proportion to its total assets.
Question
Please refer to the vertical analysis of a section of a balance sheet,shown below:  (Dollar amounts in millions) 20172016 Amount % of total  Amount % of total  Assets  Current assets:  Cash $100003.7%$72002.9% Accounts receivable, net 156005.7%168006.7% Inventory 3800013.9%3100012.4% Total current assets 6360023.2%5500022.0% Property, plant and equipment, net 19500071.3%16800067.2% Other non-current assets 150005.5%2710010.8% Total assets $273600100.0%$250100100.0%\begin{array}{|c|c|c|c|c|}\hline \text { (Dollar amounts in millions) } & 2017 & & 2016 & \\\hline & \text { Amount } & \% \text { of total } & \text { Amount } & \% \text { of total } \\\hline \text { Assets } & & & & \\\hline \text { Current assets: } & & & & \\\hline \text { Cash } & \$ 10000 & 3.7 \% & \$ 7200 & 2.9 \% \\\hline \text { Accounts receivable, net } & 15600 & 5.7 \% & 16800 & 6.7 \% \\\hline \text { Inventory } & 38000 & 13.9 \% & 31000 & 12.4 \% \\\hline \text { Total current assets } & 63600 & 23.2 \% & 55000 & 22.0 \% \\\hline \text { Property, plant and equipment, net } & 195000 & 71.3 \% & 168000 & 67.2 \% \\\hline \text { Other non-current assets } & 15000 & 5.5 \% & 27100 & 10.8 \% \\\hline \text { Total assets } & \$ 273600 & 100.0 \% & \$ 250100 & 100.0 \% \\\hline\end{array} Which of the following statements is valid regarding the data shown above?

A)Other non-current assets dropped 5.5% over the two year period.
B)In 2017,Inventory represented 13.9% of net sales revenues.
C)Cash grew 3.7% over the previous year balance.
D)Property,plant and equipment grew as a percentage of total assets over the two year period.
Question
Which of the following balance sheets displays shows only percentages?

A)A horizontal analysis balance sheet
B)A vertical analysis balance sheet
C)A common-size balance sheet
D)A balance sheet as shown in the annual report of a company
Question
Shelcal Ltd provides the following data for the year 2016:  Sales revenue $430,000 Sales returns and allowances 1300 Sales discounts 830 Net sales revenue $427,870 Cost of sales $259,000\begin{array} { | l | l | } \hline \text { Sales revenue } & \$ 430,000 \\\hline \text { Sales returns and allowances } & 1300 \\\hline \text { Sales discounts } & 830 \\\hline \text { Net sales revenue } & \$ 427,870 \\\hline \text { Cost of sales } & \$ 259,000 \\\hline\end{array} On a vertical analysis report,cost of sales as a percentage of net sales will amount to:

A)60.72%
B)60.53%
C)60.23%
D)60.84%
Question
Olivera Ltd provides the following data for the year 2016:  Sales revenue $629,000 Sales returns and allowances 20,000 Sales discounts 6000 Net sales revenue $603,000 Cost of sales $390,000\begin{array} { | l | l | } \hline \text { Sales revenue } & \$ 629,000 \\\hline \text { Sales returns and allowances } & 20,000 \\\hline \text { Sales discounts } & 6000 \\\hline \text { Net sales revenue } & \$ 603,000 \\\hline \text { Cost of sales } & \$ 390,000 \\\hline\end{array} On a vertical analysis report,the gross profit as a percentage of net sales will be:

A)35.32%
B)33.86%
C)36.32%
D)64.68%
Question
Please refer to the vertical analysis of a section of a balance sheet,shown below:  (Dollar amounts in millions) 20172016 Amount % of total  Amount % of total  Assets  Current assets:  Cash $100003.7%$72002.9% Accounts receivable, net 156005.7%168006.7% Inventory 3800013.9%3100012.4% Total current assets 6360023.2%5500022.0% Property, plant and equipment, net 19500071.3%16800067.2% Other non-current assets 150005.5%2710010.8% Total assets $273600100.0%$250100100.0%\begin{array}{|c|c|c|c|c|}\hline \text { (Dollar amounts in millions) } & 2017 & & 2016 & \\\hline & \text { Amount } & \% \text { of total } & \text { Amount } & \% \text { of total } \\\hline \text { Assets } & & & & \\\hline \text { Current assets: } & & & & \\\hline \text { Cash } & \$ 10000 & 3.7 \% & \$ 7200 & 2.9 \% \\\hline \text { Accounts receivable, net } & 15600 & 5.7 \% & 16800 & 6.7 \% \\\hline \text { Inventory } & 38000 & 13.9 \% & 31000 & 12.4 \% \\\hline \text { Total current assets } & 63600 & 23.2 \% & 55000 & 22.0 \% \\\hline \text { Property, plant and equipment, net } & 195000 & 71.3 \% & 168000 & 67.2 \% \\\hline \text { Other non-current assets } & 15000 & 5.5 \% & 27100 & 10.8 \% \\\hline \text { Total assets } & \$ 273600 & 100.0 \% & \$ 250100 & 100.0 \% \\\hline\end{array} Which of the following statements accurately describes the 13.9% shown for Inventory in 2017?

A)In 2017,inventory grew 13.9% over the previous year.
B)In 2017,inventory was equal to 13.9% of the cash balance.
C)Inventory declined as a percentage of total assets over the two year period.
D)In 2017,inventory is equal to 13.9% of total assets.
Question
Please refer to the partial balance sheet data provided below:  (Dollar amounts in millions) 20172016 Amount % of total  Amount % of total  Liabilities  Current liabilities  Accounts payable $85003.1%$73002.9% Other current liabilities 14000.5%39001.6% Total current liabilities 99003.6%112004.5% Long-term loans payable 5400019.7%3000012.0% Total liabilities $6390023.4%$4120016.5% Shareholders’ equity  Share capital 16100058.9%16100064.4% Retained earnings 4870017.8%4790019.2% Total shareholders’ equity $20970076.6%$20890083.5% Total liabilities and shareholder’s’ equity $273600100.0%$250100100.0%\begin{array}{|l|c|c|c|c|}\hline \text { (Dollar amounts in millions) } & 2017 & & 2016 & \\\hline & \text { Amount } & \% \text { of total } & \text { Amount } & \% \text { of total } \\\hline{\text { Liabilities }} & \\\hline \text { Current liabilities } & \\\hline \text { Accounts payable } & \$ 8500 & 3.1 \% & \$ 7300 & 2.9 \% \\\hline \text { Other current liabilities } & 1400 & 0.5 \% & 3900 & 1.6 \% \\\hline \text { Total current liabilities } & 9900 & 3.6 \% & 11200 & 4.5 \% \\\hline \text { Long-term loans payable } & 54000 & 19.7 \% & 30000 & 12.0 \% \\\hline \text { Total liabilities } & \$ 63900 & 23.4 \% & \$ 41200 & 16.5 \% \\\hline \text { Shareholders' equity } \\\hline \text { Share capital } & 161000 & 58.9 \% & 161000 & 64.4 \% \\\hline \text { Retained earnings } & 48700 & 17.8 \% & 47900 & 19.2 \% \\\hline \text { Total shareholders' equity } & \$ 209700 & 76.6 \% & \$ 208900 & 83.5 \% \\\hline \text { Total liabilities and shareholder's' equity } & \$ 273600 & 100.0 \% & \$ 250100 & 100.0 \% \\\hline\end{array} Which of the following accurately describes the 3.6% figure shown for total current liabilities in 2017?

A)In 2017,total current liabilities decreased as a percentage of net sales revenue.
B)In 2017,total current liabilities was equal to 3.6% of total liabilities and shareholders' equity.
C)In 2017,total current liabilities was equal to 3.6% of total liabilities.
D)In 2017,total current liabilities increased as a percentage of total liabilities and shareholders' equity over the prior year.
Question
Which of the following is NOT true of benchmarking?

A)It uses vertical analysis as its primary methodology.
B)It is used to compare a company against its competitors.
C)It is used to compare companies of different sizes.
D)It is used to compare a company's results against industry averages.
Question
In a vertical analysis of the income statement,each line item is shown as a percentage of profit.
Question
Benchmarking is the comparison of a company's current year results with an earlier year's performance.
Question
The price/earnings ratio indicates the:

A)market price of $1 of earnings.
B)ease of selling inventory.
C)dividend yield of the company.
D)percentage of ordinary shares financed by debt.
Question
A company has $510 000 in Average ordinary shareholders' equity,Profit of $312 000,and Preferred dividends paid of $15 000.What is the rate of return on ordinary shareholders' equity?

A)61.2%
B)62.0%
C)58.2%
D)59.3%
Question
Which of the following items is a measure of a company's ability to collect receivables?

A)The days' sales in receivables
B)The current ratio
C)The inventory turnover ratio
D)The acid-test ratio
Question
Benchmarking means comparing a company's financial results to:

A)industry standards or competitors.
B)its budget for the coming year.
C)the expectations of the capital markets.
D)its own results in prior years.
Question
The Arlington Company prepared a common-size income statement to compare its results with its key competitor,Bardo Company.Please refer to the following data:  Arlington Co.  Bardo Co.  Revenues 100.0%100.0% Cost of sales 42.1%47.8% Gross profit 57.9%52.2% Selling and general expenses:  Sales and marketing expense 26.3%8.6% General and administrative expense 12.0%10.8% Research and development expense 4.1%10.2% Total selling and general expenses 42.4%29.6% Profit before tax 15.5%22.6% Income tax expense 3.3%5.8% Profit (loss) 12.2%16.8%\begin{array}{|l|r|r|} \hline& \text { Arlington Co. } &{\text { Bardo Co. }} \\\hline \text { Revenues } & 100.0 \% & 100.0 \% \\\hline \text { Cost of sales } & 42.1 \% & 47.8 \% \\\hline \text { Gross profit } & 57.9 \% & 52.2 \% \\\hline \text { Selling and general expenses: } & &\\\hline \text { Sales and marketing expense } & 26.3 \% & 8.6 \% \\\hline \text { General and administrative expense } & 12.0 \% & 10.8 \% \\\hline \text { Research and development expense } & 4.1 \% & 10.2 \% \\\hline \text { Total selling and general expenses } & 42.4 \% & 29.6 \% \\\hline & & \\\hline \text { Profit before tax } & 15.5 \% & 22.6 \% \\\hline \text { Income tax expense } & 3.3 \% & 5.8 \% \\\hline \text { Profit (loss) } & 12.2 \% & 16.8 \% \\\hline\end{array} Which of the following statements can be correctly concluded from the above data?

A)Arlington's cost of sales is lower than Bardo's on a per unit basis.
B)Arlington makes less total profit than Bardo.
C)Arlington produces a higher amount of gross profit than Bardo.
D)Bardo has more effective cost control than Arlington in the area of selling and general expenses.
Question
The Arlington Company prepared a common-size income statement to compare its results with its key competitor,Bardo Company.Please refer to the following data:
 Arlington Co.  Bardo Co.  Revenues 100.0%100.0% Cost of sales 42.1%47.8% Gross profit 57.9%52.2% Selling and general expenses:  Sales and marketing expense 26.3%8.6% General and administrative expense 12.0%10.8% Research and development expense 4.1%10.2% Total selling and general expenses 42.4%29.6% Profit before tax 15.5%22.6% Income tax expense 3.3%5.8% Profit (loss) 12.2%16.8%\begin{array}{|l|r|r|} \hline& \text { Arlington Co. } &{\text { Bardo Co. }} \\\hline \text { Revenues } & 100.0 \% & 100.0 \% \\\hline \text { Cost of sales } & 42.1 \% & 47.8 \% \\\hline \text { Gross profit } & 57.9 \% & 52.2 \% \\\hline \text { Selling and general expenses: } & &\\\hline \text { Sales and marketing expense } & 26.3 \% & 8.6 \% \\\hline \text { General and administrative expense } & 12.0 \% & 10.8 \% \\\hline \text { Research and development expense } & 4.1 \% & 10.2 \% \\\hline \text { Total selling and general expenses } & 42.4 \% & 29.6 \% \\\hline & & \\\hline \text { Profit before tax } & 15.5 \% & 22.6 \% \\\hline \text { Income tax expense } & 3.3 \% & 5.8 \% \\\hline \text { Profit (loss) } & 12.2 \% & 16.8 \% \\\hline\end{array} Based on this data,an analyst could conclude that Arlington's total gross profit is higher than Bardo's.
Question
Arlington Company has prepared the following common-size income statement to compare its performance with industry averages:
 Arlington Co.  Industry  Revenues 100.0%100.0% Cost of sales 43.8%39.7% Gross profit 56.2%60.3% Selling and general expenses:  Sales and marketing expense 18.1%21.4% General and administrative expense 12.0%14.2% Research and development expense 4.1%4.0% Total selling and general expenses 34.2%39.6% Profit before tax 22.0%20.7% Income taxexpense 4.4%4.2% Profit (loss) 17.6%16.5%\begin{array} { | l | r | r | } \hline & \text { Arlington Co. } & \text { Industry } \\\hline \text { Revenues } & 100.0 \% & 100.0 \% \\\hline \text { Cost of sales } & 43.8 \% & 39.7 \% \\\hline \text { Gross profit } & 56.2 \% & 60.3 \% \\\hline \text { Selling and general expenses: } & & \\\hline \text { Sales and marketing expense } & 18.1 \% & 21.4 \% \\\hline \text { General and administrative expense } & 12.0 \% & 14.2 \% \\\hline \text { Research and development expense } & 4.1 \% & 4.0 \% \\\hline \text { Total selling and general expenses } & 34.2 \% & 39.6 \% \\\hline & & \\\hline \text { Profit before tax } & 22.0 \% & 20.7 \% \\\hline \text { Income taxexpense } & 4.4 \% & 4.2 \% \\\hline \text { Profit (loss) } & 17.6 \% & 16.5 \% \\\hline\end{array} Based on the above data,an analyst could conclude that Arlington achieves better results than the industry average by controlling its selling and general expenses more effectively.
Question
Arlington Company has prepared the following common-size income statement to compare its performance with industry averages:
 Arlington Co.  Industry  Revenues 100.0%100.0% Cost of sales 43.8%39.7% Gross profit 56.2%60.3% Selling and general expenses:  Sales and marketing expense 18.1%21.4% General and administrative expense 12.0%14.2% Research and development expense 4.1%4.0% Total selling and general expenses 34.2%39.6% Profit before tax 22.0%20.7% Income taxexpense 4.4%4.2% Profit (loss) 17.6%16.5%\begin{array} { | l | r | r | } \hline & \text { Arlington Co. } & \text { Industry } \\\hline \text { Revenues } & 100.0 \% & 100.0 \% \\\hline \text { Cost of sales } & 43.8 \% & 39.7 \% \\\hline \text { Gross profit } & 56.2 \% & 60.3 \% \\\hline \text { Selling and general expenses: } & & \\\hline \text { Sales and marketing expense } & 18.1 \% & 21.4 \% \\\hline \text { General and administrative expense } & 12.0 \% & 14.2 \% \\\hline \text { Research and development expense } & 4.1 \% & 4.0 \% \\\hline \text { Total selling and general expenses } & 34.2 \% & 39.6 \% \\\hline & & \\\hline \text { Profit before tax } & 22.0 \% & 20.7 \% \\\hline \text { Income taxexpense } & 4.4 \% & 4.2 \% \\\hline \text { Profit (loss) } & 17.6 \% & 16.5 \% \\\hline\end{array} This is an example of benchmarking.
Question
Which of the following ratios is a measure of a company's ability to pay liabilities with current assets?

A)The days' sales in receivables
B)The price/earnings ratio
C)The inventory turnover ratio
D)The current ratio
Question
Arlington Company has prepared the following common-size income statement to compare its performance with industry averages:  Arlington Co.  Industry  Revenues 100.0%100.0% Cost of sales 43.8%39.7% Gross profit 56.2%60.3% Selling and general expenses:  Sales and marketing expense 18.1%21.4% General and administrative expense 12.0%14.2% Research and development expense 4.1%4.0% Total selling and general expenses 34.2%39.6% Profit before tax 22.0%20.7% Income taxexpense 4.4%4.2% Profit (loss) 17.6%16.5%\begin{array} { | l | r | r | } \hline & \text { Arlington Co. } & \text { Industry } \\\hline \text { Revenues } & 100.0 \% & 100.0 \% \\\hline \text { Cost of sales } & 43.8 \% & 39.7 \% \\\hline \text { Gross profit } & 56.2 \% & 60.3 \% \\\hline \text { Selling and general expenses: } & & \\\hline \text { Sales and marketing expense } & 18.1 \% & 21.4 \% \\\hline \text { General and administrative expense } & 12.0 \% & 14.2 \% \\\hline \text { Research and development expense } & 4.1 \% & 4.0 \% \\\hline \text { Total selling and general expenses } & 34.2 \% & 39.6 \% \\\hline & & \\\hline \text { Profit before tax } & 22.0 \% & 20.7 \% \\\hline \text { Income taxexpense } & 4.4 \% & 4.2 \% \\\hline \text { Profit (loss) } & 17.6 \% & 16.5 \% \\\hline\end{array} Which of the following statements can be correctly concluded from the above data?

A)Arlington achieves better results than the industry by earning higher revenues.
B)Arlington achieves better profitability than the industry,primarily by controlling selling and general expenses more effectively.
C)Arlington's profit is higher than the industry average.
D)Arlington's gross profit per dollar of sales is higher than the industry average.
Question
The Arlington Company prepared a common-size income statement to compare its results with its key competitor,Bardo Company.Please refer to the following data:
 Arlington Co.  Bardo Co.  Revenues 100.0%100.0% Cost of sales 42.1%47.8% Gross profit 57.9%52.2% Selling and general expenses:  Sales and marketing expense 26.3%8.6% General and administrative expense 12.0%10.8% Research and development expense 4.1%10.2% Total selling and general expenses 42.4%29.6% Profit before tax 15.5%22.6% Income tax expense 3.3%5.8% Profit (loss) 12.2%16.8%\begin{array}{|l|r|r|} \hline& \text { Arlington Co. } &{\text { Bardo Co. }} \\\hline \text { Revenues } & 100.0 \% & 100.0 \% \\\hline \text { Cost of sales } & 42.1 \% & 47.8 \% \\\hline \text { Gross profit } & 57.9 \% & 52.2 \% \\\hline \text { Selling and general expenses: } & &\\\hline \text { Sales and marketing expense } & 26.3 \% & 8.6 \% \\\hline \text { General and administrative expense } & 12.0 \% & 10.8 \% \\\hline \text { Research and development expense } & 4.1 \% & 10.2 \% \\\hline \text { Total selling and general expenses } & 42.4 \% & 29.6 \% \\\hline & & \\\hline \text { Profit before tax } & 15.5 \% & 22.6 \% \\\hline \text { Income tax expense } & 3.3 \% & 5.8 \% \\\hline \text { Profit (loss) } & 12.2 \% & 16.8 \% \\\hline\end{array} Based on this data,an analyst could conclude that Arlington's performance is not as good as Bardo's because it has much higher sales and marketing expenses.
Question
Which of the following ratios is a measure of a company's ability to pay all current liabilities if they become due immediately?

A)The acid-test ratio
B)The inventory turnover ratio
C)The times-interest-earned ratio
D)The debt ratio
Question
Which of the following signifies that a company may be unable to pay its current liabilities if they suddenly become due?

A)High current ratio
B)Low gross profit percentage
C)High earnings per share
D)Low current ratio
Question
Arlington Company has prepared the following common-size income statement to compare its performance with industry averages:
 Arlington Co.  Industry  Revenues 100.0%100.0% Cost of sales 43.8%39.7% Gross profit 56.2%60.3% Selling and general expenses:  Sales and marketing expense 18.1%21.4% General and administrative expense 12.0%14.2% Research and development expense 4.1%4.0% Total selling and general expenses 34.2%39.6% Profit before tax 22.0%20.7% Income taxexpense 4.4%4.2% Profit (loss) 17.6%16.5%\begin{array} { | l | r | r | } \hline & \text { Arlington Co. } & \text { Industry } \\\hline \text { Revenues } & 100.0 \% & 100.0 \% \\\hline \text { Cost of sales } & 43.8 \% & 39.7 \% \\\hline \text { Gross profit } & 56.2 \% & 60.3 \% \\\hline \text { Selling and general expenses: } & & \\\hline \text { Sales and marketing expense } & 18.1 \% & 21.4 \% \\\hline \text { General and administrative expense } & 12.0 \% & 14.2 \% \\\hline \text { Research and development expense } & 4.1 \% & 4.0 \% \\\hline \text { Total selling and general expenses } & 34.2 \% & 39.6 \% \\\hline & & \\\hline \text { Profit before tax } & 22.0 \% & 20.7 \% \\\hline \text { Income taxexpense } & 4.4 \% & 4.2 \% \\\hline \text { Profit (loss) } & 17.6 \% & 16.5 \% \\\hline\end{array} Based on the above data,an analyst could conclude that Arlington's total profit is higher than the industry average.
Question
A common-size statement reports only percentages-no dollar amounts.
Question
Benchmarking is often done by comparing a company against either a key competitor or against the industry average.
Question
The common-size statement percentages are the same percentages that appear in horizontal analysis.
Question
Common-size statements allow the comparison of two or more companies with different amounts of net sales and assets.
Question
Which of the following ratios is used to determine how quickly and easily a company is able to sell its inventory?

A)Price/earnings ratio
B)Inventory turnover
C)Return on net sales
D)Current ratio
Question
Peartree Company provides the following data:  BALANCE SHEET 31 Dec 201731 Dec 2016 Cash $21000$18000 Accounts receivable, net 3100035000 Inventory 5300025000 PP&E, net 12000090000 Total assets $225000$168000\begin{array} { | l | r | r | } \hline \text { BALANCE SHEET } & 31 \text { Dec } 2017 & 31 \text { Dec } 2016 \\\hline \text { Cash } & \$ 21000 & \$ 18000 \\\hline \text { Accounts receivable, net } & 31000 & 35000 \\\hline \text { Inventory } & 53000 & 25000 \\\hline \text { PP\&E, net } & 120000 & 90000 \\\hline \text { Total assets } & \$ 225000 & \$ 168000 \\\hline\end{array} Additional information:
• Net sales (all on account): $240 000
• Cost of sales: $110 000
How much is the accounts receivable turnover for 2017?

A)7.07
B)1.55
C)7.27
D)0.76
Question
When comparing one company to another,what kind of information does the gross profit percentage provide?

A)How effective each company is at collecting its receivables
B)How profitable each company is based on the sale of its products
C)How much profit is generated by a share of each company
D)How well each company manages the financing of its assets
Question
What kind of information does the dividend yield provide?

A)How much profit each shareholder makes when he sells his shares
B)How often a company pays dividends
C)How much an investor can expect to receive in dividends
D)How much dividend revenue a company earns on its short-term investments
Question
When comparing one company to another,what kind of information does the accounts receivable turnover provide?

A)How well each company manages the financing of its assets
B)How effective each company is at collecting cash from its credit customers
C)How profitable each company is based on the sale of its products
D)How much profit is generated by a share of each company
Question
What kind of information does a company's debt ratio provide?

A)What proportion of the company's debts are non-current liabilities
B)How much profit is generated by each share
C)How well a company is positioned to pay off all of its long-term debt
D)What proportion of the company's assets are financed by debt,as opposed to equity
Question
What kind of information does a company's times-interest-earned ratio provide?

A)How much profit is generated by each share
B)What proportion of the company's assets are financed by debt,as opposed to equity
C)How well a company is positioned to pay interest expense on its debt
D)What proportion of the company's debts are non-current liabilities
Question
When comparing two companies,what kind of information does a company's rate of return on total assets provide?

A)How effectively each company uses leverage to finance its business
B)How much profit each company generates with each dollar of sales
C)How effectively a company collects cash on credit sales
D)How effectively each company uses assets to generate profits
Question
A company reports profit of $70 000 and net sales of $950 000.Which of the following is the rate of return on net sales?

A)0.05
B)0.07
C)0.20
D)0.66
Question
What does the debt-to-equity ratio show?

A)The ability of a company to pay off its current liabilities
B)The proportion of a company's total financing that is accomplished by borrowing
C)The potential for growth in the price of a share
D)The amount of profit earned by one share
Question
Peartree Company provides the following data:  BALANCE SHEET 31 Dec 201731 Dec 2016 Cash $21000$18000 Accounts receivable, net 3100035000 Inventory 5300025000 PP&E, net 12000090000 Total assets $225000$168000 Accounts payable $4000$6000 Accrued liabilities 20001000 Long-term loans payable 8400090000 Total liabilities $90000$97000 Share capital $30000$2000 Retained earnings 10500069000 Total shareholders’ equity $135000$71000 Total liabilities and  Shareholders’equity $225000$168000\begin{array}{|l|r|r|}\hline \text { BALANCE SHEET } & 31 \text { Dec } 2017 & 31 \text { Dec } 2016 \\\hline \text { Cash } & \$ 21000 & \$ 18000 \\\hline \text { Accounts receivable, net } & 31000 & 35000 \\\hline \text { Inventory } & 53000 & 25000 \\\hline \text { PP\&E, net } & 120000 & 90000 \\\hline \text { Total assets } & \$ 225000 & \$ 168000 \\\hline\\\hline \text { Accounts payable } & \$ 4000 & \$ 6000 \\\hline \text { Accrued liabilities } & 2000 & 1000 \\\hline \text { Long-term loans payable } & 84000 & 90000 \\\hline \text { Total liabilities } & \$ 90000 & \$ 97000 \\\hline\\\hline \text { Share capital } & \$ 30000 & \$ 2000 \\\hline \text { Retained earnings } & 105000 & 69000 \\\hline \text { Total shareholders' equity } & \$ 135000 & \$ 71000 \\\hline \text { Total liabilities and } & & \\\text { Shareholders'equity } & \$ 225000 & \$ 168000\\\hline\end{array} How much is the current ratio at year-end 2017?

A)17.5
B)0.5
C)3.5
D)16.1
Question
What kind of information does a company's rate of return on net sales provide?

A)How effectively a company collects cash on credit sales
B)What proportion of each dollar of sales revenue generates gross profit
C)The proportion of sales returns and allowances to gross sales revenue
D)What proportion of each dollar of sales revenue generates profit
Question
What does the term financial leverage mean?

A)The ability of a company to pay off its current liabilities
B)The ability of a company to generate cash flows
C)The amount of profit earned by one share of ordinary shares
D)The proportion of a company's total capital that is financed by debt,as opposed to equity
Question
When comparing a company's results from one year to the next,what kind of information does a company's earnings per share figure provide?

A)Whether the company's total profit has gone up or down
B)Whether the amount of profit generated by one share has gone up or down
C)Whether the market price of a share has gone up or down
D)Whether the company generates more or less profit per sales dollar
Question
What kind of information does the rate of return on ordinary shareholders' equity provide?

A)How much profit a company generates relative to its shareholders' equity
B)How much profit each shareholder makes when he sells his shares
C)How much inventory is returned by customers
D)What proportion of each dollar of sales revenue generates profit
Question
A company has 6 000 shares of ordinary shares outstanding and no preference shares.The total ordinary shareholders' equity is $1 500 000.The book value per share of ordinary shares is:

A)$.004.
B)$2.50.
C)$250.00.
D)$4.00.
Question
Which of the following accurately describes working capital?

A)Current assets minus inventory
B)Total debt minus shareholders' equity
C)Current assets minus current liabilities
D)Cost of sales divided by average inventory
Question
Peartree Company provides the following data:  BALANCE SHEET 31 Dec 201731 Dec 2016 Cash $21000$18000 Accounts receivable, net 3100035000 Inventory 5300025000 PP&E, net 12000090000 Total assets $225000$168000 Accounts payable $4000$6000 Accrued liabilities 20001000 Long-term loans payable 8400090000 Total liabilities $90000$97000 Share capital $30000$2000 Retained earnings 10500069000 Total shareholders’ equity $135000$71000 Total liabilities and  Shareholders’equity $225000$168000\begin{array}{|l|r|r|}\hline \text { BALANCE SHEET } & 31 \text { Dec } 2017 & 31 \text { Dec } 2016 \\\hline \text { Cash } & \$ 21000 & \$ 18000 \\\hline \text { Accounts receivable, net } & 31000 & 35000 \\\hline \text { Inventory } & 53000 & 25000 \\\hline \text { PP\&E, net } & 120000 & 90000 \\\hline \text { Total assets } & \$ 225000 & \$ 168000 \\\hline\\\hline \text { Accounts payable } & \$ 4000 & \$ 6000 \\\hline \text { Accrued liabilities } & 2000 & 1000 \\\hline \text { Long-term loans payable } & 84000 & 90000 \\\hline \text { Total liabilities } & \$ 90000 & \$ 97000 \\\hline\\\hline \text { Share capital } & \$ 30000 & \$ 2000 \\\hline \text { Retained earnings } & 105000 & 69000 \\\hline \text { Total shareholders' equity } & \$ 135000 & \$ 71000 \\\hline \text { Total liabilities and } & & \\\text { Shareholders'equity } & \$ 225000 & \$ 168000\\\hline\end{array} What is Peartree's debt ratio at year-end 2017?

A)0.67
B)4.67
C)0.40
D)1.00
Question
What kind of information does a company's asset turnover ratio provide?

A)How well a company collects cash from its customers
B)The amount of net sales generated by each dollar of assets invested
C)How often a company acquires new assets
D)What proportion of each dollar of sales revenue generates profit
Question
Days in inventory is a ratio measure that addresses:

A)how profitable a company is.
B)how quickly a company can sell its inventory.
C)how well a company is positioned to pay its current liabilities.
D)how quickly a company can collect its receivables.
Question
Partridge Company provides the following information for the year 2016: Earnings per share $0.24/share
Market price of ordinary shares: $12.00/share
Dividends paid: $0.80/share
(No preference shares issued)
How much was the dividend payout for one share?

A)0.30
B)3.95
C)1.67
D)3.33
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Deck 18: Financial Statement Analysis
1
The profit for a company was $540 000 this year and $630 000 last year.Profit decreased by 17%.
False
2
Please refer to the vertical analysis of income statement data shown below: 20172016 Rollar amounts in millions)  Amount % of total  Amount  % of total  Revenues $6355100.0%$4920100.0% Cost of sales 337053.0%220044.7% Gross profit $298547.0%$272055.3% Expenses: Sales and marketing expense $67510.6%$58011.8% General and  administrative expense 4106.5%4258.6% Research and  development expense 4707.4%3907.9% Other expense 4006.3%69514.1% Total expenses $195530.8%$209042.5% Profit before tax $103016.2%$63012.8% Income tax expense 2303.6%2104.3% Profit (loss) $80012.6%$4208.5%\begin{array}{|l|r|r|r|r|}\hline & 2017 & & 2016 & \\\hline \text { Rollar amounts in millions) } & \text { Amount } & \% \text { of total } & \text { Amount } & \text { \% of total } \\\hline \text { Revenues } & \$ 6355 & 100.0 \% & \$ 4920 & 100.0 \%\\\hline \text { Cost of sales } & 3370 & 53.0 \% & 2200 & 44.7 \% \\\hline \text { Gross profit } & \$ 2985 & 47.0 \% & \$ 2720 & 55.3 \% \\\hline \text { Expenses: } & & & & \\\hline\text {Sales and marketing expense }&\$ 675 & 10.6 \% & \$ 580 & 11.8 \% \\\hline\text { General and } & & \\\text { administrative expense } & 410 & 6.5 \%&425&8.6\%\\\hline \text { Research and } & & \\\text { development expense } & 470 & 7.4 \%&390&7.9\% \\\hline \text { Other expense } & 400 & 6.3 \% & 695 & 14.1 \% \\\hline \text { Total expenses } & \$ 1955 & 30.8 \% & \$ 2090 & 42.5 \% \\\hline & & & & \\\hline \text { Profit before tax } & \$ 1030 & 16.2 \% & \$ 630 & 12.8 \% \\\hline \text { Income tax expense } & 230 & 3.6 \% & 210 & 4.3 \% \\\hline \text { Profit (loss) } & \$ 800 & 12.6 \% & \$ 420 & 8.5 \% \\\hline\end{array} The figure 47.0% shown for Gross profit in 2017 signifies that:

A)in 2017,gross profit is 47% of cost of sales.
B)in 2017,gross profit is equal to 47% of profit.
C)in 2017,gross profit is up 47% versus the previous year.
D)in 2017,gross profit is 47% of revenues.
in 2017,gross profit is 47% of revenues.
3
The following is a summary of information presented on the financial statements of a company on 31 December 2017.  Account 20172016 Sales revenue $603,000$500,000 Cost of sales 454,000401,000 Gross profit $149,000$99,000 Selling expenses 55,000$4,000 Profit before income tax $94,000$45,000 Income tax expense 39,00019,000 Profit $55,000$26,000\begin{array}{|l|l|l|}\hline\text { Account } & 2017 & 2016 \\\hline \text { Sales revenue } & \$ 603,000 & \$ 500,000 \\\hline \text { Cost of sales } & 454,000 & 401,000 \\\hline \text { Gross profit } & \$ 149,000 & \$ 99,000 \\\hline \text { Selling expenses } & 55,000 & \$ 4,000 \\\hline \text { Profit before income tax } & \$ 94,000 & \$ 45,000 \\\hline \text { Income tax expense } & 39,000 & 19,000 \\\hline \text { Profit } & \$ 55,000 & \$ 26,000 \\\hline\end{array} What would a horizontal analysis report show with respect to Profit?

A)a 89.66% increase in Profit
B)a 111.54% increase in Profit
C)a $26,000 increase in Profit
D)both Profit before income tax and Profit are 89.66% of Sales revenue
a 111.54% increase in Profit
4
Which of the following BEST describes horizontal analysis?

A)Showing each figure as a percentage of some other amount,such as total assets
B)Comparing a company's financial figures with other companies that are leaders
C)Comparing figures year to year
D)Calculating key ratios to evaluate performance
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5
If an analyst wishes to see how sales revenue of a company has changed from one year to the next,which of the following types of financial statement analysis would be used?

A)Ratio analysis
B)Horizontal analysis
C)Common-size financial statement analysis
D)Vertical analysis
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6
Horizontal analysis compares each item in the income statement to the net sales amount.
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7
The trend analysis report of Doppler Ltd is given below:  (in millions) 20202019201820172016 Profit $680$604$458$407$399 Trend percentages 170151115102100\begin{array} { | l | l | l | l | l | l | } \hline \text { (in millions) } & 2020 & 2019 & 2018 & 2017 & 2016 \\\hline \text { Profit } & \$ 680 & \$ 604 & \$ 458 & \$ 407 & \$ 399 \\\hline \text { Trend percentages } & 170 & 151 & 115 & 102 & 100 \\\hline\end{array} Which of the following is a correct conclusion from the above analysis?

A)Profit for the year 2019 decreased by 151% from 2018.
B)Profit for the year 2020 is 170% of that for the year 2016.
C)Profit for the year 2019 is 151% of the previous year.
D)Profit for the year 2020 increased by 170% from 2019.
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8
The following is a summary of information presented on the financial statements of a company on 31 December 2017.  Account 20172016 Current assets $82,000$70,000 Accounts receivable 63,00071,000 Inventory 62,00055,000 Current liabilities 56,00047,000 Non-current liabilities 42,00055,000 Share capital 75,00054,000 Retained earnings 66,00044,000\begin{array}{|l|l|l|}\hline\text { Account } &{2017} & 2016 \\\hline \text { Current assets } & \$ 82,000 & \$ 70,000 \\\hline \text { Accounts receivable } & 63,000 & 71,000 \\\hline \text { Inventory } & 62,000 & 55,000 \\\hline \text { Current liabilities } & 56,000 & 47,000 \\\hline \text { Non-current liabilities } & 42,000 & 55,000 \\\hline \text { Share capital } & 75,000 & 54,000 \\\hline \text { Retained earnings } & 66,000 & 44,000\\\hline\end{array} What would a horizontal analysis report show with respect to Non-current liabilities?

A)Non-current liabilities decreased by $21,000
B)Non-current liabilities decreased by 38.89%
C)Non-current liabilities decreased by $9000
D)Non-current liabilities decreased by 23.64%
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9
If an analyst wishes to see how gross profit of a company has changed from one year to the next,vertical analysis would be the best approach.
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10
Please refer to the vertical analysis of income statement data shown below: 20172016 Rollar amounts in millions)  Amount % of total  Amount  % of total  Revenues $6355100.0%$4920100.0% Cost of sales 337053.0%220044.7% Gross profit $298547.0%$272055.3% Expenses: Sales and marketing expense $67510.6%$58011.8% General and  administrative expense 4106.5%4258.6% Research and  development expense 4707.4%3907.9% Other expense 4006.3%69514.1% Total expenses $195530.8%$209042.5% Profit before tax $103016.2%$63012.8% Income tax expense 2303.6%2104.3% Profit (loss) $80012.6%$4208.5%\begin{array}{|l|r|r|r|r|}\hline & 2017 & & 2016 & \\\hline \text { Rollar amounts in millions) } & \text { Amount } & \% \text { of total } & \text { Amount } & \text { \% of total } \\\hline \text { Revenues } & \$ 6355 & 100.0 \% & \$ 4920 & 100.0 \%\\\hline \text { Cost of sales } & 3370 & 53.0 \% & 2200 & 44.7 \% \\\hline \text { Gross profit } & \$ 2985 & 47.0 \% & \$ 2720 & 55.3 \% \\\hline \text { Expenses: } & & & & \\\hline\text {Sales and marketing expense }&\$ 675 & 10.6 \% & \$ 580 & 11.8 \% \\\hline\text { General and } & & \\\text { administrative expense } & 410 & 6.5 \%&425&8.6\%\\\hline \text { Research and } & & \\\text { development expense } & 470 & 7.4 \%&390&7.9\% \\\hline \text { Other expense } & 400 & 6.3 \% & 695 & 14.1 \% \\\hline \text { Total expenses } & \$ 1955 & 30.8 \% & \$ 2090 & 42.5 \% \\\hline & & & & \\\hline \text { Profit before tax } & \$ 1030 & 16.2 \% & \$ 630 & 12.8 \% \\\hline \text { Income tax expense } & 230 & 3.6 \% & 210 & 4.3 \% \\\hline \text { Profit (loss) } & \$ 800 & 12.6 \% & \$ 420 & 8.5 \% \\\hline\end{array} The figure 8.5% shown for profit in 2016 signifies that:

A)in 2016,Profit is equal to 8.5% times Profit before tax.
B)in 2016,Profit is equal to 8.5% of Revenues.
C)in 2016,Profit is up 8.5% versus the previous year.
D)in 2016,Profit is 8.5% of Gross profit.
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11
Investors and creditors generally evaluate a company by using one year's data.
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12
The following is a summary of information presented on the financial statements of a company on 31 December 2017.  Account 20172016 Sales revenue $603,000$502,000 Cost of sales 450,000403,000 Gross profit 153,00099,000 Selling expenses 52,00052,000 Profit before income tax 101,00047,000 Income tax expense 37,00024,000 Profit $64,000$23,000\begin{array}{|l|l|l|}\hline\text { Account } &{2017} & 2016 \\\hline \text { Sales revenue } & \$ 603,000 & \$ 502,000 \\\hline \text { Cost of sales } & 450,000 & 403,000 \\\hline \text { Gross profit } & 153,000 & 99,000 \\\hline \text { Selling expenses } & 52,000 & 52,000 \\\hline \text { Profit before income tax } & 101,000 & 47,000 \\\hline \text { Income tax expense } & 37,000 & 24,000 \\\hline \text { Profit } & \$ 64,000 & \$ 23,000\\\hline\end{array} What would a horizontal analysis report show with respect to Sales revenue?

A)a decrease of $47,000 in Sales revenue
B)an increase of $47,000 in Sales revenue
C)a 20.12% increase in Sales revenue
D)a 239.04% decrease in Sales revenue
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13
Which of the following is the base amount when performing vertical analysis of an income statement?

A)Sales revenue
B)Gross profit
C)Net sales
D)Total expenses
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14
The following is a summary of information presented on the financial statements of a company on 31 December 2017.  Account 20172016 Current assets $68,000$52,000 Accounts receivable 34,00030,000 Inventory 52,00041,000 Current liabilities 76,00049,000 Non-current liabilities 32,00055,000 Share capital 51,00042,000 Retained earnings 45,00027,000 Sales revenue $526,000$501,000 Cost of sales 402,000400,000 Gross profit $124,000$101,000 Selling expenses 47,000$1,000 Profit before income tax $77,000$50,000 Income tax expense 24,000$16,900 Profit $53,000$33,100\begin{array}{|l|c|c|}\hline\text { Account } & 2017 & 2016 \\\hline \text { Current assets } & \$ 68,000 & \$ 52,000 \\\hline \text { Accounts receivable } & 34,000 & 30,000 \\\hline \text { Inventory } & 52,000 & 41,000 \\\hline \text { Current liabilities } & 76,000 & 49,000 \\\hline \text { Non-current liabilities } & 32,000 & 55,000 \\\hline \text { Share capital } & 51,000 & 42,000 \\\hline \text { Retained earnings } & 45,000 & 27,000\\\hline \\\hline \text { Sales revenue } & \$ 526,000 & \$ 501,000 \\\hline \text { Cost of sales } & 402,000 & 400,000 \\\hline \text { Gross profit } & \$ 124,000 & \$ 101,000 \\\hline \text { Selling expenses } & 47,000 & \$ 1,000 \\\hline \text { Profit before income tax } & \$ 77,000 & \$ 50,000 \\\hline \text { Income tax expense } & 24,000 & \$ 16,900 \\\hline \text { Profit } & \$ 53,000 & \$ 33,100 \\\hline \end{array} What would a horizontal analysis report show with respect to Current liabilities?

A)a 55.1% increase in Current liabilities
B)a 35.53% increase in Current liabilities
C)a current ratio of 0.89
D)Current liabilities are 37.25% of total capital
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15
If an analyst wishes to see how a company's selling and general expenses as a percentage of net sales have changed from one year to the next,which of the following types of financial statement analysis would be used?

A)Common-size financial statement analysis
B)Horizontal analysis
C)Ratio analysis
D)Vertical analysis
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16
Which of the following BEST describes trend analysis?

A)Showing each figure as a percentage of some other amount,such as total assets
B)Showing each year's figures as a percentage of amounts for a base year
C)Comparing a company's financial figures with other companies that are leaders
D)Calculating key ratios to evaluate performance
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17
If an analyst wishes to see how selling and general expenses of a company have changed from one year to the next,using a horizontal analysis would be the best approach.
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18
Which of the following is the definition of vertical analysis?

A)Vertical analysis is the analysis in which percentages are computed by selecting a base year as 100% and expressing amounts for following years as a percentage of the base amount.
B)Vertical analysis is the practice of comparing a company with other companies that are leaders.
C)Vertical analysis is the study of percentage changes in comparative financial statements.
D)Vertical analysis is the analysis of a financial statement that reveals the relationship of each statement item to a specified base,which is the 100% figure.
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19
Which of the following is the base amount when performing vertical analysis of a balance sheet?

A)Gross profit
B)Profit
C)Total cash and cash equivalents
D)Total assets
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20
The trend analysis report of Doppler Ltd is given below:  (in millions) 20202019201820172016 Profit $670$602$460$407$402 Trend percentages 167150114101100\begin{array}{|l|l|l|l|l|l|}\hline\text { (in millions) } & 2020 & 2019 & 2018 & 2017 & 2016 \\\hline \text { Profit } & \$ 670 & \$ 602 & \$ 460 & \$ 407 & \$ 402 \\\hline \text { Trend percentages } & 167 & 150 & 114 & 101 & 100\\\hline\end{array} Which of the following is a correct conclusion from the above analysis?

A)Profit for the year 2018 has decreased by 14% over that for the year 2016.
B)Profit for the year 2018 has increased by 14% over that for the year 2016.
C)Profit for the year 2018 has decreased by 114% over that for the year 2016.
D)Profit for the year 2018 has increased by 114% over that for the year 2016.
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21
In a vertical analysis of the income statement,each line item is shown as a percentage of gross profit.
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22
If you are comparing your company's results with those of other companies in the industry,the process is called:

A)a horizontal analysis.
B)a trend analysis.
C)sensitivity analysis.
D)benchmarking.
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23
Please refer to the following data: 20172016 Rollar amounts in millions)  Amount % of total  Amount  % of total  Revenues $6355100.0%$4920100.0% Cost of sales 337053.0%220044.7% Gross profit $298547.0%$272055.3% Expenses: Sales and marketing expense $67510.6%$58011.8% General and  administrative expense 4106.5%4258.6% Research and  development expense 4707.4%3907.9% Other expense 4006.3%69514.1% Total expenses $195530.8%$209042.5% Profit before tax $103016.2%$63012.8% Income tax expense 2303.6%2104.3% Profit (loss) $80012.6%$4208.5%\begin{array}{|l|r|r|r|r|}\hline & 2017 & & 2016 & \\\hline \text { Rollar amounts in millions) } & \text { Amount } & \% \text { of total } & \text { Amount } & \text { \% of total } \\\hline \text { Revenues } & \$ 6355 & 100.0 \% & \$ 4920 & 100.0 \%\\\hline \text { Cost of sales } & 3370 & 53.0 \% & 2200 & 44.7 \% \\\hline \text { Gross profit } & \$ 2985 & 47.0 \% & \$ 2720 & 55.3 \% \\\hline \text { Expenses: } & & & & \\\hline\text {Sales and marketing expense }&\$ 675 & 10.6 \% & \$ 580 & 11.8 \% \\\hline\text { General and } & & \\\text { administrative expense } & 410 & 6.5 \%&425&8.6\%\\\hline \text { Research and } & & \\\text { development expense } & 470 & 7.4 \%&390&7.9\% \\\hline \text { Other expense } & 400 & 6.3 \% & 695 & 14.1 \% \\\hline \text { Total expenses } & \$ 1955 & 30.8 \% & \$ 2090 & 42.5 \% \\\hline & & & & \\\hline \text { Profit before tax } & \$ 1030 & 16.2 \% & \$ 630 & 12.8 \% \\\hline \text { Income tax expense } & 230 & 3.6 \% & 210 & 4.3 \% \\\hline \text { Profit (loss) } & \$ 800 & 12.6 \% & \$ 420 & 8.5 \% \\\hline\end{array} Which of the following statements is a valid conclusion based on this data?

A)Profit in 2017 increased 12.6% over the prior year.
B)Profit in 2017 went down because gross profit as a percentage of sales revenue declined over the two year period.
C)Profitability in 2017 improved greatly,as profit increased significantly as a percentage of sales revenue.
D)Profitability in 2017 took a dive as selling and general expenses increased by 30.8%.
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24
Please refer to the partial balance sheet data provided below:  (Dollar amounts in millions) 20172016 Amount % of total  Amount % of total  Liabilities  Current liabilities  Accounts payable $85003.1%$73002.9% Other current liabilities 14000.5%39001.6% Total current liabilities 99003.6%112004.5% Long-term loans payable 5400019.7%3000012.0% Total liabilities $6390023.4%$4120016.5% Shareholders’ equity  Share capital 16100058.9%16100064.4% Retained earnings 4870017.8%4790019.2% Total shareholders’ equity $20970076.6%$20890083.5% Total liabilities and shareholder’s’ equity $273600100.0%$250100100.0%\begin{array}{|l|c|c|c|c|}\hline \text { (Dollar amounts in millions) } & 2017 & & 2016 & \\\hline & \text { Amount } & \% \text { of total } & \text { Amount } & \% \text { of total } \\\hline{\text { Liabilities }} & \\\hline \text { Current liabilities } & \\\hline \text { Accounts payable } & \$ 8500 & 3.1 \% & \$ 7300 & 2.9 \% \\\hline \text { Other current liabilities } & 1400 & 0.5 \% & 3900 & 1.6 \% \\\hline \text { Total current liabilities } & 9900 & 3.6 \% & 11200 & 4.5 \% \\\hline \text { Long-term loans payable } & 54000 & 19.7 \% & 30000 & 12.0 \% \\\hline \text { Total liabilities } & \$ 63900 & 23.4 \% & \$ 41200 & 16.5 \% \\\hline \text { Shareholders' equity } \\\hline \text { Share capital } & 161000 & 58.9 \% & 161000 & 64.4 \% \\\hline \text { Retained earnings } & 48700 & 17.8 \% & 47900 & 19.2 \% \\\hline \text { Total shareholders' equity } & \$ 209700 & 76.6 \% & \$ 208900 & 83.5 \% \\\hline \text { Total liabilities and shareholder's' equity } & \$ 273600 & 100.0 \% & \$ 250100 & 100.0 \% \\\hline\end{array} Which of the following would be a valid conclusion from the above data?

A)Shareholders' equity,as a percentage of total liabilities and shareholders' equity,declined over a two year period.
B)Shareholders' equity declined to 76.6% of net sales in 2017.
C)Shareholders' equity was up 76.6% over a two year period.
D)Shareholders' equity was equal to 76.6% of total liabilities in 2017.
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25
Please refer to the vertical analysis of a section of a balance sheet,shown below:  (Dollar amounts in millions) 20172016 Amount % of total  Amount % of total  Assets  Current assets:  Cash $100003.7%$72002.9% Accounts receivable, net 156005.7%168006.7% Inventory 3800013.9%3100012.4% Total current assets 6360023.2%5500022.0% Property, plant and equipment, net 19500071.3%16800067.2% Other non-current assets 150005.5%2710010.8% Total assets $273600100.0%$250100100.0%\begin{array}{|c|c|c|c|c|}\hline \text { (Dollar amounts in millions) } & 2017 & & 2016 & \\\hline & \text { Amount } & \% \text { of total } & \text { Amount } & \% \text { of total } \\\hline \text { Assets } & & & & \\\hline \text { Current assets: } & & & & \\\hline \text { Cash } & \$ 10000 & 3.7 \% & \$ 7200 & 2.9 \% \\\hline \text { Accounts receivable, net } & 15600 & 5.7 \% & 16800 & 6.7 \% \\\hline \text { Inventory } & 38000 & 13.9 \% & 31000 & 12.4 \% \\\hline \text { Total current assets } & 63600 & 23.2 \% & 55000 & 22.0 \% \\\hline \text { Property, plant and equipment, net } & 195000 & 71.3 \% & 168000 & 67.2 \% \\\hline \text { Other non-current assets } & 15000 & 5.5 \% & 27100 & 10.8 \% \\\hline \text { Total assets } & \$ 273600 & 100.0 \% & \$ 250100 & 100.0 \% \\\hline\end{array} Which of the following statements accurately describes the data shown for total current assets?

A)In 2017,current assets grew by 23.2% compared to 2016.
B)In 2017,current assets as a percentage of total assets declined over the previous year.
C)Current assets grew as a percentage of total assets over the two year period.
D)Current assets are equal to 23.2% of net sales in 2017.
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26
If an analyst wishes to compare several different companies that vary in size,which of the following types of financial statement analysis would be used?

A)Common-size financial statement analysis
B)Vertical analysis
C)Horizontal analysis
D)Ratio analysis
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27
The Arlington Company prepared a common-size income statement to compare its results with its key competitor,Bardo Company.Please refer to the following data:  Arlington Co.  Bardo Co.  Revenues 100.0%100.0% Cost of sales 42.1%47.8% Gross profit 57.9%52.2% Selling and general expenses:  Sales and marketing expense 26.3%8.6% General and administrative expense 12.0%10.8% Research and development expense 4.1%10.2% Total selling and general expenses 42.4%29.6% Profit before tax 15.5%22.6% Income tax expense 3.3%5.8% Profit (loss) 12.2%16.8%\begin{array}{|l|r|r|} \hline& \text { Arlington Co. } &{\text { Bardo Co. }} \\\hline \text { Revenues } & 100.0 \% & 100.0 \% \\\hline \text { Cost of sales } & 42.1 \% & 47.8 \% \\\hline \text { Gross profit } & 57.9 \% & 52.2 \% \\\hline \text { Selling and general expenses: } & &\\\hline \text { Sales and marketing expense } & 26.3 \% & 8.6 \% \\\hline \text { General and administrative expense } & 12.0 \% & 10.8 \% \\\hline \text { Research and development expense } & 4.1 \% & 10.2 \% \\\hline \text { Total selling and general expenses } & 42.4 \% & 29.6 \% \\\hline & & \\\hline \text { Profit before tax } & 15.5 \% & 22.6 \% \\\hline \text { Income tax expense } & 3.3 \% & 5.8 \% \\\hline \text { Profit (loss) } & 12.2 \% & 16.8 \% \\\hline\end{array} Which of the following statements can be correctly concluded from the above data?

A)Bardo places a higher priority on research and development than Arlington.
B)Bardo's total selling and general expenses are lower than Arlington's.
C)Bardo produces higher gross profit per dollar of sales than Arlington.
D)Bardo Company produced higher total profit than Arlington.
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28
Vertical analysis is used with the income statement,but not with the balance sheet.
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29
Please refer to the partial balance sheet data provided below:  (Dollar amounts in millions) 20172016 Amount % of total  Amount % of total  Liabilities  Current liabilities  Accounts payable $85003.1%$73002.9% Other current liabilities 14000.5%39001.6% Total current liabilities 99003.6%112004.5% Long-term loans payable 5400019.7%3000012.0% Total liabilities $6390023.4%$4120016.5% Shareholders’ equity  Share capital 16100058.9%16100064.4% Retained earnings 4870017.8%4790019.2% Total shareholders’ equity $20970076.6%$20890083.5% Total liabilities and shareholder’s’ equity $273600100.0%$250100100.0%\begin{array}{|l|c|c|c|c|}\hline \text { (Dollar amounts in millions) } & 2017 & & 2016 & \\\hline & \text { Amount } & \% \text { of total } & \text { Amount } & \% \text { of total } \\\hline{\text { Liabilities }} & \\\hline \text { Current liabilities } & \\\hline \text { Accounts payable } & \$ 8500 & 3.1 \% & \$ 7300 & 2.9 \% \\\hline \text { Other current liabilities } & 1400 & 0.5 \% & 3900 & 1.6 \% \\\hline \text { Total current liabilities } & 9900 & 3.6 \% & 11200 & 4.5 \% \\\hline \text { Long-term loans payable } & 54000 & 19.7 \% & 30000 & 12.0 \% \\\hline \text { Total liabilities } & \$ 63900 & 23.4 \% & \$ 41200 & 16.5 \% \\\hline \text { Shareholders' equity } \\\hline \text { Share capital } & 161000 & 58.9 \% & 161000 & 64.4 \% \\\hline \text { Retained earnings } & 48700 & 17.8 \% & 47900 & 19.2 \% \\\hline \text { Total shareholders' equity } & \$ 209700 & 76.6 \% & \$ 208900 & 83.5 \% \\\hline \text { Total liabilities and shareholder's' equity } & \$ 273600 & 100.0 \% & \$ 250100 & 100.0 \% \\\hline\end{array} Which of the following is a valid conclusion from the above data?

A)The company relied heavily on retained earnings to finance asset growth in 2017.
B)Current asset and current liability data suggest a liquidity problem in 2017.
C)The company shifted towards greater debt financing and less equity financing over the two year period.
D)The balance in Retained earnings declined over a two year period.
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30
Which of the following is the definition of benchmarking?

A)Benchmarking is the analysis of a financial statement that shows each item as a percentage of net sales or total assets.
B)Benchmarking is the comparison of two companies using horizontal analysis.
C)Benchmarking is the study of percentage changes in financial statement line items year to year.
D)Benchmarking is the practice of comparing a company with other companies in that industry.
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31
Oglethorpe Company reports the following information from the vertical analysis of their income statement: Profit:
4.2 % in 2017
3.9% in 2016
Which of the following statements could be logically concluded from the above data?

A)The company's total profit increased by 0.3% in 2017.
B)The company has improved the profit they make per dollar of sales in 2017.
C)The company made higher profit in 2017 than in 2016.
D)The company made a higher gross profit in 2017 than in 2016.
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32
Oglethorpe Company reports the following information from the vertical analysis of their balance sheet: Current assets:
23.5 % in 2017
23.9% in 2016
Which of the following statements could be logically concluded from the above data?

A)The company's ability to pay current liabilities declined.
B)The company's current ratio declined.
C)The company's total current assets declined by 0.4%.
D)The company's current assets declined in proportion to its total assets.
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33
Please refer to the vertical analysis of a section of a balance sheet,shown below:  (Dollar amounts in millions) 20172016 Amount % of total  Amount % of total  Assets  Current assets:  Cash $100003.7%$72002.9% Accounts receivable, net 156005.7%168006.7% Inventory 3800013.9%3100012.4% Total current assets 6360023.2%5500022.0% Property, plant and equipment, net 19500071.3%16800067.2% Other non-current assets 150005.5%2710010.8% Total assets $273600100.0%$250100100.0%\begin{array}{|c|c|c|c|c|}\hline \text { (Dollar amounts in millions) } & 2017 & & 2016 & \\\hline & \text { Amount } & \% \text { of total } & \text { Amount } & \% \text { of total } \\\hline \text { Assets } & & & & \\\hline \text { Current assets: } & & & & \\\hline \text { Cash } & \$ 10000 & 3.7 \% & \$ 7200 & 2.9 \% \\\hline \text { Accounts receivable, net } & 15600 & 5.7 \% & 16800 & 6.7 \% \\\hline \text { Inventory } & 38000 & 13.9 \% & 31000 & 12.4 \% \\\hline \text { Total current assets } & 63600 & 23.2 \% & 55000 & 22.0 \% \\\hline \text { Property, plant and equipment, net } & 195000 & 71.3 \% & 168000 & 67.2 \% \\\hline \text { Other non-current assets } & 15000 & 5.5 \% & 27100 & 10.8 \% \\\hline \text { Total assets } & \$ 273600 & 100.0 \% & \$ 250100 & 100.0 \% \\\hline\end{array} Which of the following statements is valid regarding the data shown above?

A)Other non-current assets dropped 5.5% over the two year period.
B)In 2017,Inventory represented 13.9% of net sales revenues.
C)Cash grew 3.7% over the previous year balance.
D)Property,plant and equipment grew as a percentage of total assets over the two year period.
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34
Which of the following balance sheets displays shows only percentages?

A)A horizontal analysis balance sheet
B)A vertical analysis balance sheet
C)A common-size balance sheet
D)A balance sheet as shown in the annual report of a company
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35
Shelcal Ltd provides the following data for the year 2016:  Sales revenue $430,000 Sales returns and allowances 1300 Sales discounts 830 Net sales revenue $427,870 Cost of sales $259,000\begin{array} { | l | l | } \hline \text { Sales revenue } & \$ 430,000 \\\hline \text { Sales returns and allowances } & 1300 \\\hline \text { Sales discounts } & 830 \\\hline \text { Net sales revenue } & \$ 427,870 \\\hline \text { Cost of sales } & \$ 259,000 \\\hline\end{array} On a vertical analysis report,cost of sales as a percentage of net sales will amount to:

A)60.72%
B)60.53%
C)60.23%
D)60.84%
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36
Olivera Ltd provides the following data for the year 2016:  Sales revenue $629,000 Sales returns and allowances 20,000 Sales discounts 6000 Net sales revenue $603,000 Cost of sales $390,000\begin{array} { | l | l | } \hline \text { Sales revenue } & \$ 629,000 \\\hline \text { Sales returns and allowances } & 20,000 \\\hline \text { Sales discounts } & 6000 \\\hline \text { Net sales revenue } & \$ 603,000 \\\hline \text { Cost of sales } & \$ 390,000 \\\hline\end{array} On a vertical analysis report,the gross profit as a percentage of net sales will be:

A)35.32%
B)33.86%
C)36.32%
D)64.68%
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37
Please refer to the vertical analysis of a section of a balance sheet,shown below:  (Dollar amounts in millions) 20172016 Amount % of total  Amount % of total  Assets  Current assets:  Cash $100003.7%$72002.9% Accounts receivable, net 156005.7%168006.7% Inventory 3800013.9%3100012.4% Total current assets 6360023.2%5500022.0% Property, plant and equipment, net 19500071.3%16800067.2% Other non-current assets 150005.5%2710010.8% Total assets $273600100.0%$250100100.0%\begin{array}{|c|c|c|c|c|}\hline \text { (Dollar amounts in millions) } & 2017 & & 2016 & \\\hline & \text { Amount } & \% \text { of total } & \text { Amount } & \% \text { of total } \\\hline \text { Assets } & & & & \\\hline \text { Current assets: } & & & & \\\hline \text { Cash } & \$ 10000 & 3.7 \% & \$ 7200 & 2.9 \% \\\hline \text { Accounts receivable, net } & 15600 & 5.7 \% & 16800 & 6.7 \% \\\hline \text { Inventory } & 38000 & 13.9 \% & 31000 & 12.4 \% \\\hline \text { Total current assets } & 63600 & 23.2 \% & 55000 & 22.0 \% \\\hline \text { Property, plant and equipment, net } & 195000 & 71.3 \% & 168000 & 67.2 \% \\\hline \text { Other non-current assets } & 15000 & 5.5 \% & 27100 & 10.8 \% \\\hline \text { Total assets } & \$ 273600 & 100.0 \% & \$ 250100 & 100.0 \% \\\hline\end{array} Which of the following statements accurately describes the 13.9% shown for Inventory in 2017?

A)In 2017,inventory grew 13.9% over the previous year.
B)In 2017,inventory was equal to 13.9% of the cash balance.
C)Inventory declined as a percentage of total assets over the two year period.
D)In 2017,inventory is equal to 13.9% of total assets.
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38
Please refer to the partial balance sheet data provided below:  (Dollar amounts in millions) 20172016 Amount % of total  Amount % of total  Liabilities  Current liabilities  Accounts payable $85003.1%$73002.9% Other current liabilities 14000.5%39001.6% Total current liabilities 99003.6%112004.5% Long-term loans payable 5400019.7%3000012.0% Total liabilities $6390023.4%$4120016.5% Shareholders’ equity  Share capital 16100058.9%16100064.4% Retained earnings 4870017.8%4790019.2% Total shareholders’ equity $20970076.6%$20890083.5% Total liabilities and shareholder’s’ equity $273600100.0%$250100100.0%\begin{array}{|l|c|c|c|c|}\hline \text { (Dollar amounts in millions) } & 2017 & & 2016 & \\\hline & \text { Amount } & \% \text { of total } & \text { Amount } & \% \text { of total } \\\hline{\text { Liabilities }} & \\\hline \text { Current liabilities } & \\\hline \text { Accounts payable } & \$ 8500 & 3.1 \% & \$ 7300 & 2.9 \% \\\hline \text { Other current liabilities } & 1400 & 0.5 \% & 3900 & 1.6 \% \\\hline \text { Total current liabilities } & 9900 & 3.6 \% & 11200 & 4.5 \% \\\hline \text { Long-term loans payable } & 54000 & 19.7 \% & 30000 & 12.0 \% \\\hline \text { Total liabilities } & \$ 63900 & 23.4 \% & \$ 41200 & 16.5 \% \\\hline \text { Shareholders' equity } \\\hline \text { Share capital } & 161000 & 58.9 \% & 161000 & 64.4 \% \\\hline \text { Retained earnings } & 48700 & 17.8 \% & 47900 & 19.2 \% \\\hline \text { Total shareholders' equity } & \$ 209700 & 76.6 \% & \$ 208900 & 83.5 \% \\\hline \text { Total liabilities and shareholder's' equity } & \$ 273600 & 100.0 \% & \$ 250100 & 100.0 \% \\\hline\end{array} Which of the following accurately describes the 3.6% figure shown for total current liabilities in 2017?

A)In 2017,total current liabilities decreased as a percentage of net sales revenue.
B)In 2017,total current liabilities was equal to 3.6% of total liabilities and shareholders' equity.
C)In 2017,total current liabilities was equal to 3.6% of total liabilities.
D)In 2017,total current liabilities increased as a percentage of total liabilities and shareholders' equity over the prior year.
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39
Which of the following is NOT true of benchmarking?

A)It uses vertical analysis as its primary methodology.
B)It is used to compare a company against its competitors.
C)It is used to compare companies of different sizes.
D)It is used to compare a company's results against industry averages.
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40
In a vertical analysis of the income statement,each line item is shown as a percentage of profit.
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41
Benchmarking is the comparison of a company's current year results with an earlier year's performance.
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42
The price/earnings ratio indicates the:

A)market price of $1 of earnings.
B)ease of selling inventory.
C)dividend yield of the company.
D)percentage of ordinary shares financed by debt.
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43
A company has $510 000 in Average ordinary shareholders' equity,Profit of $312 000,and Preferred dividends paid of $15 000.What is the rate of return on ordinary shareholders' equity?

A)61.2%
B)62.0%
C)58.2%
D)59.3%
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44
Which of the following items is a measure of a company's ability to collect receivables?

A)The days' sales in receivables
B)The current ratio
C)The inventory turnover ratio
D)The acid-test ratio
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45
Benchmarking means comparing a company's financial results to:

A)industry standards or competitors.
B)its budget for the coming year.
C)the expectations of the capital markets.
D)its own results in prior years.
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46
The Arlington Company prepared a common-size income statement to compare its results with its key competitor,Bardo Company.Please refer to the following data:  Arlington Co.  Bardo Co.  Revenues 100.0%100.0% Cost of sales 42.1%47.8% Gross profit 57.9%52.2% Selling and general expenses:  Sales and marketing expense 26.3%8.6% General and administrative expense 12.0%10.8% Research and development expense 4.1%10.2% Total selling and general expenses 42.4%29.6% Profit before tax 15.5%22.6% Income tax expense 3.3%5.8% Profit (loss) 12.2%16.8%\begin{array}{|l|r|r|} \hline& \text { Arlington Co. } &{\text { Bardo Co. }} \\\hline \text { Revenues } & 100.0 \% & 100.0 \% \\\hline \text { Cost of sales } & 42.1 \% & 47.8 \% \\\hline \text { Gross profit } & 57.9 \% & 52.2 \% \\\hline \text { Selling and general expenses: } & &\\\hline \text { Sales and marketing expense } & 26.3 \% & 8.6 \% \\\hline \text { General and administrative expense } & 12.0 \% & 10.8 \% \\\hline \text { Research and development expense } & 4.1 \% & 10.2 \% \\\hline \text { Total selling and general expenses } & 42.4 \% & 29.6 \% \\\hline & & \\\hline \text { Profit before tax } & 15.5 \% & 22.6 \% \\\hline \text { Income tax expense } & 3.3 \% & 5.8 \% \\\hline \text { Profit (loss) } & 12.2 \% & 16.8 \% \\\hline\end{array} Which of the following statements can be correctly concluded from the above data?

A)Arlington's cost of sales is lower than Bardo's on a per unit basis.
B)Arlington makes less total profit than Bardo.
C)Arlington produces a higher amount of gross profit than Bardo.
D)Bardo has more effective cost control than Arlington in the area of selling and general expenses.
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47
The Arlington Company prepared a common-size income statement to compare its results with its key competitor,Bardo Company.Please refer to the following data:
 Arlington Co.  Bardo Co.  Revenues 100.0%100.0% Cost of sales 42.1%47.8% Gross profit 57.9%52.2% Selling and general expenses:  Sales and marketing expense 26.3%8.6% General and administrative expense 12.0%10.8% Research and development expense 4.1%10.2% Total selling and general expenses 42.4%29.6% Profit before tax 15.5%22.6% Income tax expense 3.3%5.8% Profit (loss) 12.2%16.8%\begin{array}{|l|r|r|} \hline& \text { Arlington Co. } &{\text { Bardo Co. }} \\\hline \text { Revenues } & 100.0 \% & 100.0 \% \\\hline \text { Cost of sales } & 42.1 \% & 47.8 \% \\\hline \text { Gross profit } & 57.9 \% & 52.2 \% \\\hline \text { Selling and general expenses: } & &\\\hline \text { Sales and marketing expense } & 26.3 \% & 8.6 \% \\\hline \text { General and administrative expense } & 12.0 \% & 10.8 \% \\\hline \text { Research and development expense } & 4.1 \% & 10.2 \% \\\hline \text { Total selling and general expenses } & 42.4 \% & 29.6 \% \\\hline & & \\\hline \text { Profit before tax } & 15.5 \% & 22.6 \% \\\hline \text { Income tax expense } & 3.3 \% & 5.8 \% \\\hline \text { Profit (loss) } & 12.2 \% & 16.8 \% \\\hline\end{array} Based on this data,an analyst could conclude that Arlington's total gross profit is higher than Bardo's.
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48
Arlington Company has prepared the following common-size income statement to compare its performance with industry averages:
 Arlington Co.  Industry  Revenues 100.0%100.0% Cost of sales 43.8%39.7% Gross profit 56.2%60.3% Selling and general expenses:  Sales and marketing expense 18.1%21.4% General and administrative expense 12.0%14.2% Research and development expense 4.1%4.0% Total selling and general expenses 34.2%39.6% Profit before tax 22.0%20.7% Income taxexpense 4.4%4.2% Profit (loss) 17.6%16.5%\begin{array} { | l | r | r | } \hline & \text { Arlington Co. } & \text { Industry } \\\hline \text { Revenues } & 100.0 \% & 100.0 \% \\\hline \text { Cost of sales } & 43.8 \% & 39.7 \% \\\hline \text { Gross profit } & 56.2 \% & 60.3 \% \\\hline \text { Selling and general expenses: } & & \\\hline \text { Sales and marketing expense } & 18.1 \% & 21.4 \% \\\hline \text { General and administrative expense } & 12.0 \% & 14.2 \% \\\hline \text { Research and development expense } & 4.1 \% & 4.0 \% \\\hline \text { Total selling and general expenses } & 34.2 \% & 39.6 \% \\\hline & & \\\hline \text { Profit before tax } & 22.0 \% & 20.7 \% \\\hline \text { Income taxexpense } & 4.4 \% & 4.2 \% \\\hline \text { Profit (loss) } & 17.6 \% & 16.5 \% \\\hline\end{array} Based on the above data,an analyst could conclude that Arlington achieves better results than the industry average by controlling its selling and general expenses more effectively.
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49
Arlington Company has prepared the following common-size income statement to compare its performance with industry averages:
 Arlington Co.  Industry  Revenues 100.0%100.0% Cost of sales 43.8%39.7% Gross profit 56.2%60.3% Selling and general expenses:  Sales and marketing expense 18.1%21.4% General and administrative expense 12.0%14.2% Research and development expense 4.1%4.0% Total selling and general expenses 34.2%39.6% Profit before tax 22.0%20.7% Income taxexpense 4.4%4.2% Profit (loss) 17.6%16.5%\begin{array} { | l | r | r | } \hline & \text { Arlington Co. } & \text { Industry } \\\hline \text { Revenues } & 100.0 \% & 100.0 \% \\\hline \text { Cost of sales } & 43.8 \% & 39.7 \% \\\hline \text { Gross profit } & 56.2 \% & 60.3 \% \\\hline \text { Selling and general expenses: } & & \\\hline \text { Sales and marketing expense } & 18.1 \% & 21.4 \% \\\hline \text { General and administrative expense } & 12.0 \% & 14.2 \% \\\hline \text { Research and development expense } & 4.1 \% & 4.0 \% \\\hline \text { Total selling and general expenses } & 34.2 \% & 39.6 \% \\\hline & & \\\hline \text { Profit before tax } & 22.0 \% & 20.7 \% \\\hline \text { Income taxexpense } & 4.4 \% & 4.2 \% \\\hline \text { Profit (loss) } & 17.6 \% & 16.5 \% \\\hline\end{array} This is an example of benchmarking.
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50
Which of the following ratios is a measure of a company's ability to pay liabilities with current assets?

A)The days' sales in receivables
B)The price/earnings ratio
C)The inventory turnover ratio
D)The current ratio
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51
Arlington Company has prepared the following common-size income statement to compare its performance with industry averages:  Arlington Co.  Industry  Revenues 100.0%100.0% Cost of sales 43.8%39.7% Gross profit 56.2%60.3% Selling and general expenses:  Sales and marketing expense 18.1%21.4% General and administrative expense 12.0%14.2% Research and development expense 4.1%4.0% Total selling and general expenses 34.2%39.6% Profit before tax 22.0%20.7% Income taxexpense 4.4%4.2% Profit (loss) 17.6%16.5%\begin{array} { | l | r | r | } \hline & \text { Arlington Co. } & \text { Industry } \\\hline \text { Revenues } & 100.0 \% & 100.0 \% \\\hline \text { Cost of sales } & 43.8 \% & 39.7 \% \\\hline \text { Gross profit } & 56.2 \% & 60.3 \% \\\hline \text { Selling and general expenses: } & & \\\hline \text { Sales and marketing expense } & 18.1 \% & 21.4 \% \\\hline \text { General and administrative expense } & 12.0 \% & 14.2 \% \\\hline \text { Research and development expense } & 4.1 \% & 4.0 \% \\\hline \text { Total selling and general expenses } & 34.2 \% & 39.6 \% \\\hline & & \\\hline \text { Profit before tax } & 22.0 \% & 20.7 \% \\\hline \text { Income taxexpense } & 4.4 \% & 4.2 \% \\\hline \text { Profit (loss) } & 17.6 \% & 16.5 \% \\\hline\end{array} Which of the following statements can be correctly concluded from the above data?

A)Arlington achieves better results than the industry by earning higher revenues.
B)Arlington achieves better profitability than the industry,primarily by controlling selling and general expenses more effectively.
C)Arlington's profit is higher than the industry average.
D)Arlington's gross profit per dollar of sales is higher than the industry average.
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52
The Arlington Company prepared a common-size income statement to compare its results with its key competitor,Bardo Company.Please refer to the following data:
 Arlington Co.  Bardo Co.  Revenues 100.0%100.0% Cost of sales 42.1%47.8% Gross profit 57.9%52.2% Selling and general expenses:  Sales and marketing expense 26.3%8.6% General and administrative expense 12.0%10.8% Research and development expense 4.1%10.2% Total selling and general expenses 42.4%29.6% Profit before tax 15.5%22.6% Income tax expense 3.3%5.8% Profit (loss) 12.2%16.8%\begin{array}{|l|r|r|} \hline& \text { Arlington Co. } &{\text { Bardo Co. }} \\\hline \text { Revenues } & 100.0 \% & 100.0 \% \\\hline \text { Cost of sales } & 42.1 \% & 47.8 \% \\\hline \text { Gross profit } & 57.9 \% & 52.2 \% \\\hline \text { Selling and general expenses: } & &\\\hline \text { Sales and marketing expense } & 26.3 \% & 8.6 \% \\\hline \text { General and administrative expense } & 12.0 \% & 10.8 \% \\\hline \text { Research and development expense } & 4.1 \% & 10.2 \% \\\hline \text { Total selling and general expenses } & 42.4 \% & 29.6 \% \\\hline & & \\\hline \text { Profit before tax } & 15.5 \% & 22.6 \% \\\hline \text { Income tax expense } & 3.3 \% & 5.8 \% \\\hline \text { Profit (loss) } & 12.2 \% & 16.8 \% \\\hline\end{array} Based on this data,an analyst could conclude that Arlington's performance is not as good as Bardo's because it has much higher sales and marketing expenses.
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53
Which of the following ratios is a measure of a company's ability to pay all current liabilities if they become due immediately?

A)The acid-test ratio
B)The inventory turnover ratio
C)The times-interest-earned ratio
D)The debt ratio
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54
Which of the following signifies that a company may be unable to pay its current liabilities if they suddenly become due?

A)High current ratio
B)Low gross profit percentage
C)High earnings per share
D)Low current ratio
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55
Arlington Company has prepared the following common-size income statement to compare its performance with industry averages:
 Arlington Co.  Industry  Revenues 100.0%100.0% Cost of sales 43.8%39.7% Gross profit 56.2%60.3% Selling and general expenses:  Sales and marketing expense 18.1%21.4% General and administrative expense 12.0%14.2% Research and development expense 4.1%4.0% Total selling and general expenses 34.2%39.6% Profit before tax 22.0%20.7% Income taxexpense 4.4%4.2% Profit (loss) 17.6%16.5%\begin{array} { | l | r | r | } \hline & \text { Arlington Co. } & \text { Industry } \\\hline \text { Revenues } & 100.0 \% & 100.0 \% \\\hline \text { Cost of sales } & 43.8 \% & 39.7 \% \\\hline \text { Gross profit } & 56.2 \% & 60.3 \% \\\hline \text { Selling and general expenses: } & & \\\hline \text { Sales and marketing expense } & 18.1 \% & 21.4 \% \\\hline \text { General and administrative expense } & 12.0 \% & 14.2 \% \\\hline \text { Research and development expense } & 4.1 \% & 4.0 \% \\\hline \text { Total selling and general expenses } & 34.2 \% & 39.6 \% \\\hline & & \\\hline \text { Profit before tax } & 22.0 \% & 20.7 \% \\\hline \text { Income taxexpense } & 4.4 \% & 4.2 \% \\\hline \text { Profit (loss) } & 17.6 \% & 16.5 \% \\\hline\end{array} Based on the above data,an analyst could conclude that Arlington's total profit is higher than the industry average.
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56
A common-size statement reports only percentages-no dollar amounts.
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57
Benchmarking is often done by comparing a company against either a key competitor or against the industry average.
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58
The common-size statement percentages are the same percentages that appear in horizontal analysis.
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59
Common-size statements allow the comparison of two or more companies with different amounts of net sales and assets.
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60
Which of the following ratios is used to determine how quickly and easily a company is able to sell its inventory?

A)Price/earnings ratio
B)Inventory turnover
C)Return on net sales
D)Current ratio
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61
Peartree Company provides the following data:  BALANCE SHEET 31 Dec 201731 Dec 2016 Cash $21000$18000 Accounts receivable, net 3100035000 Inventory 5300025000 PP&E, net 12000090000 Total assets $225000$168000\begin{array} { | l | r | r | } \hline \text { BALANCE SHEET } & 31 \text { Dec } 2017 & 31 \text { Dec } 2016 \\\hline \text { Cash } & \$ 21000 & \$ 18000 \\\hline \text { Accounts receivable, net } & 31000 & 35000 \\\hline \text { Inventory } & 53000 & 25000 \\\hline \text { PP\&E, net } & 120000 & 90000 \\\hline \text { Total assets } & \$ 225000 & \$ 168000 \\\hline\end{array} Additional information:
• Net sales (all on account): $240 000
• Cost of sales: $110 000
How much is the accounts receivable turnover for 2017?

A)7.07
B)1.55
C)7.27
D)0.76
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62
When comparing one company to another,what kind of information does the gross profit percentage provide?

A)How effective each company is at collecting its receivables
B)How profitable each company is based on the sale of its products
C)How much profit is generated by a share of each company
D)How well each company manages the financing of its assets
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63
What kind of information does the dividend yield provide?

A)How much profit each shareholder makes when he sells his shares
B)How often a company pays dividends
C)How much an investor can expect to receive in dividends
D)How much dividend revenue a company earns on its short-term investments
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64
When comparing one company to another,what kind of information does the accounts receivable turnover provide?

A)How well each company manages the financing of its assets
B)How effective each company is at collecting cash from its credit customers
C)How profitable each company is based on the sale of its products
D)How much profit is generated by a share of each company
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65
What kind of information does a company's debt ratio provide?

A)What proportion of the company's debts are non-current liabilities
B)How much profit is generated by each share
C)How well a company is positioned to pay off all of its long-term debt
D)What proportion of the company's assets are financed by debt,as opposed to equity
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66
What kind of information does a company's times-interest-earned ratio provide?

A)How much profit is generated by each share
B)What proportion of the company's assets are financed by debt,as opposed to equity
C)How well a company is positioned to pay interest expense on its debt
D)What proportion of the company's debts are non-current liabilities
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67
When comparing two companies,what kind of information does a company's rate of return on total assets provide?

A)How effectively each company uses leverage to finance its business
B)How much profit each company generates with each dollar of sales
C)How effectively a company collects cash on credit sales
D)How effectively each company uses assets to generate profits
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68
A company reports profit of $70 000 and net sales of $950 000.Which of the following is the rate of return on net sales?

A)0.05
B)0.07
C)0.20
D)0.66
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69
What does the debt-to-equity ratio show?

A)The ability of a company to pay off its current liabilities
B)The proportion of a company's total financing that is accomplished by borrowing
C)The potential for growth in the price of a share
D)The amount of profit earned by one share
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70
Peartree Company provides the following data:  BALANCE SHEET 31 Dec 201731 Dec 2016 Cash $21000$18000 Accounts receivable, net 3100035000 Inventory 5300025000 PP&E, net 12000090000 Total assets $225000$168000 Accounts payable $4000$6000 Accrued liabilities 20001000 Long-term loans payable 8400090000 Total liabilities $90000$97000 Share capital $30000$2000 Retained earnings 10500069000 Total shareholders’ equity $135000$71000 Total liabilities and  Shareholders’equity $225000$168000\begin{array}{|l|r|r|}\hline \text { BALANCE SHEET } & 31 \text { Dec } 2017 & 31 \text { Dec } 2016 \\\hline \text { Cash } & \$ 21000 & \$ 18000 \\\hline \text { Accounts receivable, net } & 31000 & 35000 \\\hline \text { Inventory } & 53000 & 25000 \\\hline \text { PP\&E, net } & 120000 & 90000 \\\hline \text { Total assets } & \$ 225000 & \$ 168000 \\\hline\\\hline \text { Accounts payable } & \$ 4000 & \$ 6000 \\\hline \text { Accrued liabilities } & 2000 & 1000 \\\hline \text { Long-term loans payable } & 84000 & 90000 \\\hline \text { Total liabilities } & \$ 90000 & \$ 97000 \\\hline\\\hline \text { Share capital } & \$ 30000 & \$ 2000 \\\hline \text { Retained earnings } & 105000 & 69000 \\\hline \text { Total shareholders' equity } & \$ 135000 & \$ 71000 \\\hline \text { Total liabilities and } & & \\\text { Shareholders'equity } & \$ 225000 & \$ 168000\\\hline\end{array} How much is the current ratio at year-end 2017?

A)17.5
B)0.5
C)3.5
D)16.1
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71
What kind of information does a company's rate of return on net sales provide?

A)How effectively a company collects cash on credit sales
B)What proportion of each dollar of sales revenue generates gross profit
C)The proportion of sales returns and allowances to gross sales revenue
D)What proportion of each dollar of sales revenue generates profit
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72
What does the term financial leverage mean?

A)The ability of a company to pay off its current liabilities
B)The ability of a company to generate cash flows
C)The amount of profit earned by one share of ordinary shares
D)The proportion of a company's total capital that is financed by debt,as opposed to equity
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73
When comparing a company's results from one year to the next,what kind of information does a company's earnings per share figure provide?

A)Whether the company's total profit has gone up or down
B)Whether the amount of profit generated by one share has gone up or down
C)Whether the market price of a share has gone up or down
D)Whether the company generates more or less profit per sales dollar
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74
What kind of information does the rate of return on ordinary shareholders' equity provide?

A)How much profit a company generates relative to its shareholders' equity
B)How much profit each shareholder makes when he sells his shares
C)How much inventory is returned by customers
D)What proportion of each dollar of sales revenue generates profit
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75
A company has 6 000 shares of ordinary shares outstanding and no preference shares.The total ordinary shareholders' equity is $1 500 000.The book value per share of ordinary shares is:

A)$.004.
B)$2.50.
C)$250.00.
D)$4.00.
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76
Which of the following accurately describes working capital?

A)Current assets minus inventory
B)Total debt minus shareholders' equity
C)Current assets minus current liabilities
D)Cost of sales divided by average inventory
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77
Peartree Company provides the following data:  BALANCE SHEET 31 Dec 201731 Dec 2016 Cash $21000$18000 Accounts receivable, net 3100035000 Inventory 5300025000 PP&E, net 12000090000 Total assets $225000$168000 Accounts payable $4000$6000 Accrued liabilities 20001000 Long-term loans payable 8400090000 Total liabilities $90000$97000 Share capital $30000$2000 Retained earnings 10500069000 Total shareholders’ equity $135000$71000 Total liabilities and  Shareholders’equity $225000$168000\begin{array}{|l|r|r|}\hline \text { BALANCE SHEET } & 31 \text { Dec } 2017 & 31 \text { Dec } 2016 \\\hline \text { Cash } & \$ 21000 & \$ 18000 \\\hline \text { Accounts receivable, net } & 31000 & 35000 \\\hline \text { Inventory } & 53000 & 25000 \\\hline \text { PP\&E, net } & 120000 & 90000 \\\hline \text { Total assets } & \$ 225000 & \$ 168000 \\\hline\\\hline \text { Accounts payable } & \$ 4000 & \$ 6000 \\\hline \text { Accrued liabilities } & 2000 & 1000 \\\hline \text { Long-term loans payable } & 84000 & 90000 \\\hline \text { Total liabilities } & \$ 90000 & \$ 97000 \\\hline\\\hline \text { Share capital } & \$ 30000 & \$ 2000 \\\hline \text { Retained earnings } & 105000 & 69000 \\\hline \text { Total shareholders' equity } & \$ 135000 & \$ 71000 \\\hline \text { Total liabilities and } & & \\\text { Shareholders'equity } & \$ 225000 & \$ 168000\\\hline\end{array} What is Peartree's debt ratio at year-end 2017?

A)0.67
B)4.67
C)0.40
D)1.00
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78
What kind of information does a company's asset turnover ratio provide?

A)How well a company collects cash from its customers
B)The amount of net sales generated by each dollar of assets invested
C)How often a company acquires new assets
D)What proportion of each dollar of sales revenue generates profit
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79
Days in inventory is a ratio measure that addresses:

A)how profitable a company is.
B)how quickly a company can sell its inventory.
C)how well a company is positioned to pay its current liabilities.
D)how quickly a company can collect its receivables.
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80
Partridge Company provides the following information for the year 2016: Earnings per share $0.24/share
Market price of ordinary shares: $12.00/share
Dividends paid: $0.80/share
(No preference shares issued)
How much was the dividend payout for one share?

A)0.30
B)3.95
C)1.67
D)3.33
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