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Exam 14: Financial Statement Analysis

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Question 21

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Leverage implies that a company

A) contains debt financing
B) contains equity financing
C) has a high current ratio
D) has a high earnings per share

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Question 22

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An analysis in which all the components of an income statement are expressed as a percentage of sales is a

A) vertical analysis
B) horizontal analysis
C) liquidity analysis
D) solvency analysis

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Question 23

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The excess of current assets over current liabilities is referred to as working capital.

If two companies have the same current ratio, their ability to pay short-term debt is the same.

If a company has issued only one class of stock, the earnings per share are determined by dividing net income plus interest expense by the number of shares outstanding.

The following information pertains to Diane Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. What is the ratio of sales to total assets for Diane Company?

Revenue and expense data for Young Technologies are as follows: (a) Prepare an income statement in comparative form, stating each item for both years as an amount and as a percent of sales. Round to the nearest whole percent. (b) Comment on the significant changes disclosed by the comparative income statement.

Comparative information taken from the Friction Company's financial statements is shown below: Using horizontal analysis, show the percentage change and direction (increase or decrease) from Year 1 to Year 2 with Year 1 as the base year.

Using measures to assess a business's ability to pay its current liabilities is called current position analysis.

Assume the following sales data for a company: What is the percentage increase in sales from the preceding year to the current year?

If a firm has a quick ratio of 1, the subsequent payment of an account payable will cause the ratio to increase.

When the rate of return on total assets ratio is greater than the rate of return on common stockholders' equity ratio, the management of the company has effectively used leverage.

If the accounts receivable turnover for the current year has decreased when compared with the ratio for the preceding year, there has been an acceleration in the collection of receivables.

A loss due to a discontinued operation should be reported on the income statement

The analysis of increases and decreases in the amount and percentage of comparative financial statement items is referred to as horizontal analysis.

An acceleration in the collection of receivables will tend to cause the accounts receivable turnover to

A company reports the following: Determine the ratio of sales to assets.  Round your answer to one decimal place.

The numerator of the rate earned on total assets ratio is

The following data are taken from the balance sheet at the end of the current year. Determine: (a) working capital (b) current ratio (c) quick ratio. Round ratios to the nearest tenth.

A firm selling food should have higher inventory turnover rate than a firm selling office furniture.