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Exam 9: Financial Statement Analysis

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Question 21

True/False

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A banker may perform a financial ratio analysis to assess a firm's ability to repay debt in a timely manner.

A) True
B) False

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Question 22

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The Martin Company reported net income of $15,000 on gross sales of $80,000. The company has total assets of $135,000, of which $102,000 is property, plant and equipment. What is the company's return on investment?

A) 18.8%
B) 11.1%
C) 14.7%
D) 12.5%

E) B) and C)
F) A) and D)

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Question 23

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Indicate whether each of the following statements about financial statement analysis is true or false. 1. Both dividends and earnings performance are indicators of the value of a company's stock. 2. The most widely quoted measure of a company's earnings performance is return on equity. 3. Earnings per share is calculated for a company's common stock. 4. Investors need to understand that the value of a company's earnings per share is affected by its choices of accounting principles and assumptions. 5. The book value per share measures the market value of a corporation's stock.

Longwood Company had a current ratio of 3:1 at the end of 2013. The asset section of the company's balance sheet is provided below: Required: 1) Compute Longwood Company's end-of-year working capital. 2) Compute the company's quick (acid-test) ratio. 3) The company has a debt agreement with its bank that authorizes the bank to call in its loan to the company if the company's current ratio falls below 3:1 as of the last day of any month during the term of the loan. During January 2014, the company engaged in the three following transactions: (a) Collected $100,000 on account; (b) Purchased inventory on account, $50,000 (c) Paid accounts payable, $60,000 Will the company be in default after completing these transactions? Justify your answer. Round your answers to two decimal places.

Short-term creditors are usually most interested in assessing:

Which of the following statements about financial statement analysis is incorrect?

Select the incorrect statement regarding the quick ratio:

Grove Corporation had sales of $3,000,000, cost of sales of $2,250,000, and average inventory of $500,000. What was Grove's inventory turnover ratio for the period?

Working capital is current assets minus current liabilities.

Select the incorrect statement regarding ratio analysis.

Comparative income statements for Pearle Company are provided below: Required: Perform a horizontal analysis of Pearle Company's income statement by computing horizontal percentages for each item. Round your answer to one decimal place (i.e. 22.5%).

The Phibbs Company paid total cash dividends of $200,000 on 25,000 outstanding common shares. On the most recent trading day, the common shares sold at $80. What is this company's dividend yield?

The following balance sheet information is provided for Duke Company for 2014: What is the company's current ratio?

For 2014, Weston Corporation reported after-tax net income of $1,200,000. During the year, the number of outstanding shares of 6% $100 par preferred stock remained constant at 5,000, and 500,000 shares of common stock were outstanding all year. The company's total stockholders' equity at December 31, 2014, was $12,500,000. Weston's common stock was selling at $38 per share at the end of the year. All dividends for the year were paid, including a dividend of $2.50 per share to common stockholders. Required: Compute the following: (a) Earnings per share (Round your answer to the nearest cent.) (b) Book value per share of common stock (c) Price-earnings ratio (Round your answer to one decimal place.) (d) Dividend yield (Round your answer to one decimal place.)

Which of the following statements is correct?

Net income divided by sales is the formula for which of these analytical measures?

Describe the differences between the liquidity ratios, solvency ratios and profitability ratios. Identify examples of each type of ratio as well.

The only requirement involved in communicating useful information is that the information be accurate.

Profitability ratios attempt to assess the company's ability to generate earnings.

Knoell Company paid its sales employees $15,000 in sales commissions. What impact will this transaction have on the firm's working capital?