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Exam 14: Financial Statement Analysis

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Question 41

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Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007. $\begin{array}{|l|r|r|}\hline & 2007 & 2006 \\\hline \text { Net sales revenue (all credit) } & \$ 950,000 & \\\hline \text { Cost of goods sold } & 630,000 & \\\hline \text { Gross profit } & 320,000 & \\\hline \text { Selling and general expenses } & 230,000 & \\\hline \text { Interest expense } & 20,000 & \\\hline \text { Net income } & \$ 70,000 & \\\hline\\\hline \text { Current assets } & \$ 60,000 & \$ 55,000 \\\hline \text { Long-term assets } & {465,000}&{445,000} \\\hline \text { Total assets }-12 / 31 & \underline{\$ 525,000} & \$ \$ 500,000 \\\hline \text { Current liabilities } & \$ 25,000 & \$ 20,000 \\\hline \text { Long-term liabilities } & 105,000 & 205,000 \\\hline \text { Common stockholders' equity - 12/31 } & 395,000 & 275,000 \\\hline \begin{array}{l}\text { Total liabilities and } \\\text { stockholders' equity }\end{array} & \underline{\$ 525,000} & \underline{\$ 500,000} \\\hline\end{array}$ Inventory and prepaid expenses account for $20,000 of the 2007 current assets. Average inventory for 2007 is $15,000. Average net accounts receivable for 2007 is $30,000. Average one-day sales are $3,150. There are 7,000 shares of common stock outstanding. Total dividends paid during 2007 were $140,000. The market price per share of common stock is $21. What is the company's book value per share of common stock on December 31, 2007?

A) $75.00
B) $15.00
C) $56.43
D) $10.00

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Question 42

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Which of the following ratios is used to analyze stock as an investment?

A) Price/earnings ratio
B) The current ratio
C) Rate of return on net sales
D) Inventory turnover

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Question 43

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The liabilities of a company at the end of the year are $500,000 and the total stockholders' equity at the end of the year is $1,500,000. The ratio of liabilities to stockholder's equity is:

Which of the following is a common way to evaluate a company's performance?

The formula used in vertical analysis of the balance sheet is: The vertical percentage = (Each income statement item/Net sales).

Which of the following is the formula to compute inventory turnover?

Which of the following is the definition of trend percentage analysis?

The following is a summary of information presented on the income statements of Haley Publications and Johnston Publications for December 31, 2007. $\begin{array} { | l | r | r | r | r | } \hline & \begin{array} { r } \text { Haley } \\\text { Publications }\end{array} & & \begin{array} { r } \text { Johnston } \\\text { Publications }\end{array} & \\\hline \text { Account } & 2007 & \% & 2007 & \% \\\hline \text { Net sales revenue } & \$ 487,000 & 100.00 \% & \$ 500,000 & 100.00 \% \\\hline \text { Cost of goods sold } & 400,000 & 82.14 \% & \underline { 395,000 } & 79.00 \% \\\hline \text { Gross profit } & 87,000 & 17.86 \% & 105,000 & 21.00 \% \\\hline \text { Selling and general expenses } & 30,000 & 6.16 \% & \underline { 50,000 } & 10.00 \% \\\hline \text { Income from operations } & 57,000 & 11.70 \% & 55,000 & 11.00 \% \\\hline \text { Income tax expense } & 17,100 & 3.51 \% & \underline { 16,500 } & 3.30 \% \\\hline \text { Net income } & \$ 39,900 & 8.19 \% & \underline { \$ 38,500 } & 7.70 \% \\\hline\end{array}$ Which company has the better relationship between net income and net sales revenue?

The net income for the year ended was $300,000. Common stockholders' equity at the beginning of the year was $1,400,000 and $1,600,000 at the end of the year. The return on common stockholders' equity would be:

A company has net sales on account of $1,750,000. Net accounts receivable at the beginning of the year are $147,000 and at the end of the year are $153,000. The accounts receivable turnover is:

Which of the following ratios is a measure of a company's ability to collect receivables?

The following is a summary of information presented on the financial statements of The Cake Company on December 31, 2007. $\begin{array} { | l | r | r | } \hline \text { Account } & 2007 & 2006 \\\hline \text { Current assets } & \$ 65,000 & \$ 50,000 \\\hline \text { Accounts receivable } & 80,000 & 75,000 \\\hline \text { Merchandise inventory } & 50,000 & 40,000 \\\hline \text { Current liabilities } & 75,000 & 50,000 \\\hline \text { Long-term liabilities } & 30,000 & 50,000 \\\hline \begin{array} { l } \text { Common stock (2007: } 5,000 \text { shares; } \\\text { 2006: } 4,000 \text { shares) }\end{array} & 50,000 & 40,000 \\\hline \text { Retained earnings } & 40,000 & 25,000 \\\hline & \\\hline \text { Net sales revenue } & \$ 525,000 & \$ 500,000 \\\hline \text { Cost of goods sold } & 400,000 & \underline{395,000} \\\hline \text { Gross profit } & 125,000 & 105,000 \\\hline \text { Selling and general expenses } & 45,000 & 50,000 \\\hline \text { Net income before income tax expense } & 80,000 & 55,000 \\\hline \text { Income tax expense } & \underline{24,000} & \underline{16,500} \\\hline \text { Net income } & \underline{\$ 56,000} & \$ 38,500 \\\hline\end{array}$ What would horizontal analysis report with respect to selling and general expenses?

The following is a summary of information presented on the income statements of Haley Publications and Johnston Publications for December 31, 2007. $\begin{array} { | l | r | r | r | r | } \hline & \begin{array} { r } \text { Haley } \\\text { Publications }\end{array} & & \begin{array} { r } \text { Johnston } \\\text { Publications }\end{array} & \\\hline \text { Account } & 2007 & \% & 2007 & \% \\\hline \text { Net sales revenue } & \$ 487,000 & 100.00 \% & \$ 500,000 & 100.00 \% \\\hline \text { Cost of goods sold } & 400,000 & 82.14 \% & \underline { 395,000 } & 79.00 \% \\\hline \text { Gross profit } & 87,000 & 17.86 \% & 105,000 & 21.00 \% \\\hline \text { Selling and general expenses } & 30,000 & 6.16 \% & \underline { 50,000 } & 10.00 \% \\\hline \text { Income from operations } & 57,000 & 11.70 \% & 55,000 & 11.00 \% \\\hline \text { Income tax expense } & 17,100 & 3.51 \% & \underline { 16,500 } & 3.30 \% \\\hline \text { Net income } & \$ 39,900 & 8.19 \% & \underline { \$ 38,500 } & 7.70 \% \\\hline\end{array}$ Which company has the best inventory turnover rate?

What are the two main ways to analyze financial statements?

type of analysis is illustrated in the following table? $\begin{array} { | l | r | r | } \hline & \text { Company A } & \text { Industry Average } \\\hline \text { Account } & 2007 - - \% & 2006 - \% \\\hline \text { Current assets } & 33.33 \% & 30.30 \% \\\hline \text { Accounts receivable } & 41.03 \% & 45.45 \% \\\hline \text { Merchandise inventory } & \underline { 25.64 \% } & \underline { 24.24 \% } \\\hline \text { Total assets } & 100.00 \% & 100.00 \% \\\hline \text { Current liabilities } & 38.46 \% & 30.30 \% \\\hline \text { Long-term liabilities } & 15.38 \% & 30.30 \% \\\hline \text { Common stock } & 25.64 \% & 24.24 \% \\\hline \text { Retained earnings } & \underline { 20.51 \% } & \underline { 15.15 \% } \\\hline \begin{array} { l } \text { Total liabilities and } \\\text { stockholders' equity }\end{array} & \underline { 100.00 \% } & \underline { 100.00 \% } \\\hline\end{array}$

Which of the following ratios is a measure of debt leverage?

Which of the following is the formula to compute the times-interest-earned ratio?

Which of the following is the formula to compute the price/earnings ratio?

Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007. $\begin{array}{|l|r|r|}\hline & 2007 & 2006 \\\hline \text { Net sales revenue (all credit) } & \$ 950,000 & \\\hline \text { Cost of goods sold } & 630,000 & \\\hline \text { Gross profit } & 320,000 & \\\hline \text { Selling and general expenses } & 230,000 & \\\hline \text { Interest expense } & 20,000 & \\\hline \text { Net income } & \$ 70,000 & \\\hline\\\hline \text { Current assets } & \$ 60,000 & \$ 55,000 \\\hline \text { Long-term assets } & {465,000}&{445,000} \\\hline \text { Total assets }-12 / 31 & \underline{\$ 525,000} & \$ \$ 500,000 \\\hline \text { Current liabilities } & \$ 25,000 & \$ 20,000 \\\hline \text { Long-term liabilities } & 105,000 & 205,000 \\\hline \text { Common stockholders' equity - 12/31 } & 395,000 & 275,000 \\\hline \begin{array}{l}\text { Total liabilities and } \\\text { stockholders' equity }\end{array} & \underline{\$ 525,000} & \underline{\$ 500,000} \\\hline\end{array}$ Inventory and prepaid expenses account for $20,000 of the 2007 current assets. Average inventory for 2007 is $15,000. Average net accounts receivable for 2007 is $30,000. Average one-day sales are $3,150. There are 7,000 shares of common stock outstanding. Total dividends paid during 2007 were $140,000. The market price per share of common stock is $21. What is the company's rate of return on total assets?

Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007. $\begin{array}{|l|r|r|}\hline & 2007 & 2006 \\\hline \text { Net sales revenue (all credit) } & \$ 950,000 & \\\hline \text { Cost of goods sold } & 630,000 & \\\hline \text { Gross profit } & 320,000 & \\\hline \text { Selling and general expenses } & 230,000 & \\\hline \text { Interest expense } & 20,000 & \\\hline \text { Net income } & \$ 70,000 & \\\hline\\\hline \text { Current assets } & \$ 60,000 & \$ 55,000 \\\hline \text { Long-term assets } & {465,000}&{445,000} \\\hline \text { Total assets }-12 / 31 & \underline{\$ 525,000} & \$ \$ 500,000 \\\hline \text { Current liabilities } & \$ 25,000 & \$ 20,000 \\\hline \text { Long-term liabilities } & 105,000 & 205,000 \\\hline \text { Common stockholders' equity - 12/31 } & 395,000 & 275,000 \\\hline \begin{array}{l}\text { Total liabilities and } \\\text { stockholders' equity }\end{array} & \underline{\$ 525,000} & \underline{\$ 500,000} \\\hline\end{array}$ Inventory and prepaid expenses account for $20,000 of the 2007 current assets. Average inventory for 2007 is $15,000. Average net accounts receivable for 2007 is $30,000. Average one-day sales are $3,150. There are 7,000 shares of common stock outstanding. Total dividends paid during 2007 were $140,000. The market price per share of common stock is $21. What is the company's times-interest-earned ratio?