Deck 13: Financial Statement Analysis

Question 1

Trend percentages are computed only for balance sheet items.

Answer 1

False

Question 2

Year to year percentage changes in line items from comparative financial statements is called:

A)benchmarking.
B)horizontal analysis.
C)vertical analysis.
D)common-size financial statements.

Answer 2

B

Question 3

Nekich Company reports the following sales figures(in millions): What is the trend percentage in 2013 if 2008 is the base year?

A)6%
B)14%
C)86%
D)94%

Answer 3

D

Question 4

Zemanowski Company reports the following sales figures(in millions): What is the trend percentage in 2010 if 2008 is the base year?

A)98%
B)102%
C)103%
D)105%

Question 5

Horizontal analysis compares a financial statement line item in the current year with the same line item in the prior year.

Question 6

Zebra Company reports the following figures for the years ending December 31,2014 and 2013: What are the percentage changes from 2013 to 2014 for Net Sales,Cost of Goods Sold and Gross Profit,respectively?

A)100%,75.4%,24.6%
B)100%,77%,23%
C)35.4%,24.3%,26.9%
D)26.9%,24.3%,35.4%

Question 7

If a company has sales of $250 in 2015 and $225 in 2016,the percentage decrease from 2015 to 2016 is 10%.

Question 8

Horizontal analysis is most closely related to:

A)trend analysis.
B)economic value added analysis.
C)vertical analysis.
D)benchmarking.

Question 9

The primary focus of horizontal analysis is:

A)percentage changes in line items from comparative financial statements.
B)the balance sheet only.
C)the amount of individual financial statement line items as a percentage of some related total,such as total assets.
D)the income statement only.

Question 10

Horizontal analysis is performed on information from:

A)only the income statement.
B)only the balance sheet.
C)only the statement of cash flows.
D)the income statement,the balance sheet,and the statement of cash flows.

Question 11

If a company has sales of $150 in 2015 and $225 in 2016,the percentage change from 2015 to 2016 is 50%.

Question 12

A type of analysis that indicates the direction a business is taking is:

A)benchmarking.
B)economic value added analysis.
C)vertical analysis.
D)trend percentages.

Question 13

For the period from 2014 to 2015,a company reports the following: If sales are $1,000,000 in 2014,what are sales in 2015?

A)$800,000
B)$1,000,000
C)$1,020,000
D)$1,200,000

Question 14

When computing trend percentages:

A)the current year is always equal to 100%.
B)the base year is always the latest year.
C)the base year is always equal to 100%.
D)the base year is equal to the current year plus the previous year divided by two.

Question 15

For investment analysis,it is generally considered more useful to calculate the percentage changes in the dollar amounts of financial statement line items from year to year instead of using the absolute dollar amounts.

Question 16

Horizontal analysis highlights changes in financial statement line items from year to year.

Question 17

The percentage change in a financial statement line item over two years is computed by dividing the dollar amount of the line item in the most recent year by the prior year dollar amount of the line item.

Question 18

The percentage change in any individual item shown on comparative financial statements is calculated by dividing the dollar amount of the change from the base period to the current period by:

A)the amount shown for the current period.
B)the base-period amount.
C)the average of the amounts shown for the base and the current periods.
D)the amount estimated for the future period.

Question 19

Trend analysis using income statement data is widely used for predicting the future.

Question 20

The formula for the percentage change in a financial statement line item is the current year amount:

A)divided by the base year amount.
B)minus the base year amount divided by the base year amount.
C)minus the base year amount divided by current year amount.
D)added to the base year amount divided by the base year amount.

Question 21

When comparing companies of different sizes,vertical analysis is a useful tool.

Question 22

Expressing cash and cash equivalents as a percentage of total assets is an example of:

A)horizontal analysis.
B)economic value added.
C)ratio analysis.
D)vertical analysis.

Question 23

How is the percentage change (for horizontal analysis)for sales from 2014 to 2015 computed?

A)Year 2015 sales ÷ Year 2014 sales
B)(Year 2015 sales - Year 2014 sales)÷ Year 2014 sales
C)(Year 2015 sales - Year 2014 sales)÷ Year 2015 sales
D)(Year 2015 sales ÷ Year 2014 sales)× 100

Question 24

A financial statement line item expressed as a percentage of a base amount is a result of:

A)horizontal analysis.
B)economic value added.
C)vertical analysis.
D)comparative analysis.

Question 25

When performing a vertical analysis of the income statement,each line item is stated as a percentage of net income.

Question 26

A vertical analysis is primarily concerned with:

A)the dollar amount of the change in various financial statement line items from year to year.
B)individual financial statement line items expressed as a percentage of a base (which represents 100%).
C)percentage changes in the balances of line items from comparative financial statements.
D)the change in key financial statement ratios over a specified period of time.

Question 27

Vertical analysis compares a line item on the balance sheet to the same line item on the balance sheet in a prior period.

Question 28

Mussa Corporation reports the following data: In vertical analysis,the cost of goods sold percentage is closest to:

A)36%.
B)57%.
C)64%.
D)175%.

Question 29

In performing vertical analysis,the base for income before taxes is:

A)net income.
B)gross sales.
C)gross profit.
D)net sales.

Question 30

A company's net income as a percentage of sales is 15%.Using vertical analysis,the cost of goods sold as a percentage of sales must be 85%.

Question 31

Goelzer Company reports the following trend percentages for net income: Given the above data,which statement is FALSE?

A)When compared to 2010,net income is falling in 2011.
B)Net income is increasing in 2009 and 2010.
C)Net income is lower in 2012 than in 2008.
D)Net income is higher in 2012 than in 2008.

Question 32

How is the trend percentage for sales in 2015 computed? The base year is 2000.

A)Year 2015 sales ÷ Year 2000 sales
B)(Year 2015 sales - Year 2000 sales)÷ Year 2000 sales
C)(Year 2015 sales - Year 2000 sales)÷ Year 2015 sales
D)(Year 2015 sales ÷ Year 2000 sales)× 100

Question 33

Given the following data: In vertical analysis,current liabilities would be expressed as:

A)10%.
B)20%.
C)40%.
D)50%.

Question 34

In performing vertical analysis,the base for operating expenses is:

A)net sales.
B)gross profit.
C)net income.
D)operating income.

Question 35

Which of the following is typically used as the base in a vertical analysis of an income statement?

A)gross profit
B)operating income
C)net income
D)net sales

Question 36

Bryanwood Company reports the following data: Based on the above information,what can be said about the company's business strategy?

A)The company has lost control of operating expenses.
B)The company has reduced cost of goods sold.
C)The company has successfully undertaken some cost-cutting measures for operating expenses.
D)The company has fewer sales in 2015 than 2014.

Question 37

The ratio of the dollar amount of each individual asset to the dollar amount of total assets is an example of vertical analysis.

Question 38

In vertical analysis:

A)a base amount is optional.
B)a base amount is required.
C)line items from balance sheets are examined only.
D)line items from income statements are examined only.

Question 39

In performing vertical analysis,the base for inventory is:

A)total liabilities and stockholders' equity.
B)total assets.
C)total cash and cash equivalents.
D)total current assets.

Question 40

Which of the following is typically used as the base in a vertical analysis of a balance sheet?

A)Total liabilities
B)Total stockholders' equity
C)Total assets
D)Net sales

Question 41

Reimer Company reports the following data: When evaluating the results of operations,what can be said about Reimer Company?

A)Using vertical analysis,the company's profitability declined in 2014.
B)Using horizontal analysis,the company's profitability declined in 2014.
C)Using vertical analysis,the company's profitability declined in 2015.
D)Using horizontal analysis,the company's profitability declined in 2015.

Question 42

In performing vertical analysis,the base for income tax expense is:

A)net sales.
B)gross revenues.
C)net income.
D)gross profit.

Question 43

Given the following data: In vertical analysis,net income would be expressed as:

A)18%.
B)45%.
C)30%.
D)82%.

Question 44

Prepare a vertical analysis for Katrina Corporation using the information shown below.Round percentages to the nearest one-tenth percent of one percent.

Question 45

Dynasty Incorporated has the following data available at December 31,2015:
Prepare a vertical analysis of this company's balance sheet.Round to the nearest one-tenth of one percent.

Question 46

Szidon Company reports the following data: Using benchmarking,what can be said about Szidon Company?

A)Szidon is inferior to the key competitor because the key competitor's net income percentage is higher.
B)Szidon is superior to the key competitor because net income is higher.
C)There is not enough information to make any conclusions.
D)There is conflicting information so no conclusions can be reached.

Question 47

On the statement of cash flows of a healthy company,Net Cash Provided by Operating Activities is generally less than net income.

Question 48

Which of the following would be most helpful in the comparison of different size companies?

A)Horizontal analysis
B)Comparison of their net incomes
C)Comparison of their working capital balances
D)Preparation of common-size financial statements

Question 49

Hull Company reports the following data: Based on the above data,what can be said about the Hull Company?

A)The company is controlling operating expenses.
B)The company is reducing sales levels over time.
C)The company is losing control of operating expenses.
D)The company is increasing sales over time.

Question 50

Walton Company's return on sales for the most recent year was 5%.The industry leader reports a return on sales of 7%.The comparison of Walton Company's return on sales to the industry leader is an example of:

A)benchmarking.
B)gross margin analysis.
C)detail analysis.
D)intercompany analysis.

Question 51

You are the CEO of Company A and you are using an industry leader(Leader Company)for benchmarking.Company A is much smaller than Company B in terms of total assets and total sales revenue.We should compare the:

A)gross profit of Company A to the gross profit of Leader Company
B)net income of Company A to the net income of Leader Company
C)net sales of Company A to the net sales of Leader Company
D)net income to net sales ratio of Company A to net income to net sales ratio of Leader Company

Question 52

Given the following data: In vertical analysis,Accounts Receivable,net would be expressed as:

A)5%.
B)7%.
C)10%.
D)20%.

Question 53

You are using a leading competitor,Company B,for benchmarking your company,Company A.When benchmarking,the gross margin of Company A is expressed as a percentage of:

A)the net sales of Companies A and B.
B)Company B's net sales.
C)Company A's net income.
D)Company A's net sales.

Question 54

On a common-size income statement,income taxes expense is expressed as a percentage of:

A)net income.
B)total stockholders' equity.
C)total assets.
D)net sales.

Question 55

In 2014,the Zenon Company reported that property,plant and equipment were equal to 17% of total assets.In 2014,current assets were equal to 83% of total assets.In 2015 the company reported that property,plant and equipment were equal to 27% of total assets.In 2015,current assets were equal to 73% of total assets.What conclusion can be reached from this information?

A)In 2015,the company is downsizing.
B)In 2015,property,plant and equipment as a proportion of total assets increased.
C)In 2015,the company is investing in the future.
D)B and C

Question 56

A financial statement that shows each line item as a percentage of one key item on the statement is referred to as:

A)benchmarking.
B)common-size statement.
C)horizontal analysis.
D)financial ratio analysis.

Question 57

Common-size financial statements report only dollar amounts.

Question 58

On a common-size balance sheet,each line item is expressed as a percentage of:

A)current assets.
B)operating income.
C)total assets.
D)net income.

Question 59

Wilhelm Company's gross profit percentages for the past 3 years are: Based on the above data,what can be said about the Wilhelm Company?

A)The sales volume is decreasing.
B)The company is decreasing the income tax expense.
C)The company is controlling operating expenses.
D)The company is controlling cost of goods sold.

Question 60

After vertical analysis of a balance sheet,current assets have increased from 42% to 56%,this would always mean that:

A)current assets have increased as a percentage of total assets.
B)the dollar amount of total assets has increased.
C)the dollar amount of total assets has decreased.
D)the dollar amount of long-term assets has increased.

Question 61

A company reports the following information from the statement of cash flows: Which line item provides a signal that the company may have cash flow problems?

A)net cash provided by operating activities
B)net income
C)net cash used by investing activities
D)net cash used by financing activities

Question 62

On a statement of cash flows of a healthy company,net income would ordinarily be:

A)less than depreciation expense.
B)more than depreciation expense.
C)greater than Net Cash Provided by Operating Activities.
D)less than Net Cash Provided by Operating Activities.

Question 63

An example of a company with cash flow problems is:

A)a company sold property,plant and equipment for $50 million and purchased property,plant and equipment for $10 million
B)a company borrowed $1 million with long-term bonds payable and paid $1 million on long-term notes payable
C)a company sold property,plant and equipment for $5 million and purchased property,plant and equipment for $100 million
D)net cash provided by operating activities is $10 million and net income is $1 million

Question 64

A firm's ability to pay current liabilities can be evaluated using the quick ratio and the current ratio.

Question 65

On a statement of cash flows(indirect method),an increase or decrease in inventory is considered:

A)an operating activity.
B)an investing activity.
C)a financing activity.
D)an noncash investing or financing activity.

Question 66

In the statement of cash flows,more purchases of long-term assets than sales of long-term assets are considered a sign of a healthy company.

Question 67

A company reports the following information from the statement of cash flows: Which line item provides a signal that the company may have cash flow problems?

A)net cash provided by operating activities
B)net income
C)net cash provided by investing activities
D)net cash used by financing activities

Question 68

Analyzing the statement of cash flows may help analysts determine the financial health of a company.Which of the following signs below is NOT an indicator of a financially healthy company?

A)The company's operations are a major source (not a use)of cash.
B)The company's operations result in Net Cash Used by Operating Activities.
C)The company's investing activities include more purchases than sales of long-term assets.
D)The company's financing activities are not dominated by borrowing.

Question 69

On the statement of cash flows of a healthy company,Net Cash Provided by Operating Activities generally exceeds net income because depreciation expense is added back to net income.

Question 70

On a statement of cash flows(indirect method),which line item is NOT reported as an operating activity?

A)Depreciation expense
B)Net income
C)Increase in inventory
D)Repayment of long-term debt

Question 71

On a statement of cash flows(indirect method),which item is reported as a line item under Cash From Operating Activities?

A)Sale of securities
B)Purchase of fixed assets
C)Purchase of securities
D)Amortization Expense

Question 72

On a statement of cash flows,which is NOT considered a financing activity?

A)Paid income taxes
B)Proceeds from long-term debt
C)Repayment of long-term debt
D)Paid dividends

Question 73

On a statement of cash flows,which is considered an investing activity?

A)Depreciation expense
B)Increase in inventory
C)Sale of securities
D)Repayment of debt

Question 74

If the sale of plant assets is a company's major source of cash,it may be a sign of financial difficulty.

Question 75

In the statement of cash flows,sales of marketable securities are considered an operating activity.

Question 76

In the statement of cash flows,purchases of fixed assets are considered to be investing activities.

Question 77

Signs of a cash healthy company do NOT include:

A)net cash provided by operating activities exceeds net income
B)operating activities are the major source of cash
C)investing activities include more purchases than sales of long-term assets
D)borrowing $100 million and repaying $1 million

Question 78

On a statement of cash flows,repayment of long-term debt is considered:

A)an operating activity.
B)an investing activity.
C)a financing activity.
D)a noncash investing and financing activity.

Question 79

Sales of fixed assets for several years is a sign of:

A)a struggling company.
B)reinvestment in the company.
C)a shortage of cash.
D)A and C.

Question 80

On a statement of cash flows,which of the following is a sign of a healthy company?

A)Investing activities include more sales of long-term assets than purchases.
B)Financing activities are dominated by borrowing.
C)Operating activities are the major source of cash.
D)Net Cash Provided by Operating Activities is less than net income.