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Exam 23: Financial Statement Analyses

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Question 21

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The Szett Company has current assets of $650,000 and total liabilities of $430,000.Its current ratio is 2.The portion of current liabilities therefore must be equal to $300,000.

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B) False

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Question 22

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A common technique for measuring earnings per share requires a company to compute the weighted average shares outstanding during the year.

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B) False

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Question 23

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Using the information given,discuss J & S Partnership's outcomes compared to the industry averages.

Most trade associations provide common-size statements based on data gathered from member companies.

On a comparative income statement,gross revenues were $310,000,sales returns and allowances were $14,000 and sales discounts amounted to $2,200.Selling expenses of $54,000 were incurred during the year.The vertical analysis would show current year selling expenses as 18.4%.

The current ratio is a measure of _____________________;that is,the ability of a company to pay its currently maturing debts.

Comparing the amount of a balance sheet item in one year to the amount for the same item in a prior year is called

Selected financial ratios for Riparian Products and Escarpment Equipment are given.Assess the ratios given for each company and explain which company the ratios suggest is the stronger of the two.

Selected ratios for Julienne Foods,Inc.and Brut Champagnes,Inc.are given along with industry averages What do these ratios tell you about the companies regarding whether or not to invest in either of them and what additional information might be helpful in that decision?

A comparison of data for the current period with the same data of the company for previous periods is called ____________________ analysis.

A decrease in cost of goods sold from 46.5% to 45.0% from year 1 to year 2 indicates a favorable long-term trend.

The accounts receivable turnover ratio can be used to assess the collectability of accounts as well as the average collection period.

The acid-test ratio is a measure of a company's immediate liquidity and includes only liquid assets that can be quickly converted to cash.

Peabody's stock has a market price of $86 per share.The dividend yield is 10 percent.Peabody pays dividends in equal amounts each quarter.The quarterly dividend payment is $8.60.

A vertical analysis of the income statement usually involves a comparison of each income statement item with ____________________ as reported on that income statement.

Since each firm is a unique entity,comparison of data for the firm with industry averages is of no use in financial analysis.

A high ratio of stockholders' equity to total liabilities indicates a greater risk for creditors.

In horizontal analysis,the earlier period is called the ____________________ period.

The Yipsilon Company has current assets of $50,000 and current liabilities of $45,000.Its current ratio therefore must equal .9.

A high rate of return on sales is an indication of managerial efficiency and profitability.