Deck 12: Financial Statement Analysis

Question 1

Management discussion and analysis is:

A)part of a business's annual report.
B)prepared by the external auditors.
C)a summary of all the business's press releases for the year.
D)both A and B.

Answer 1

A

Question 2

Financial statement analysis indicates only that a problem may exist and offers clues as to what the problem might be.

Answer 2

True

Question 3

Net income belongs to a company's stockholders.

Answer 3

True

Question 4

The economic environment of a business describes how a business is affected by competitors.

Question 5

Financial analysis is the process of using a company's financial information to evaluate whether or not the company is creating value.

Question 6

The competitive environment of a business describes how a business competes for critical resources.

Question 7

A company's business strategy describes:

A)what the business does.
B)how the business is affected by the overall economy.
C)who the business sells to.
D)how the business creates a competitive advantage.

Question 8

Comparing your company with a competing company in the same category of business is called benchmarking.

Question 9

When an analyst compares a business with a similar business it is referred to as:

A)comparative analysis.
B)mentoring.
C)benchmarking.
D)idolizing.

Question 10

Financial analysis is used to predict the future of a business.

Question 11

Financial analysis focuses on evaluating a company's past performance to predict its current performance.

Question 12

Which of the following is NOT part of what a company's business model describes?

A)What products the company sells
B)How the company creates a competitive advantage
C)Who the company sells to
D)What the company does

Question 13

Which of the following is NOT one of the steps in financial analysis?

A)Understanding the environment in which a business operates
B)Analyzing a business' operations
C)Preparing a business' financial statements
D)Understanding a business' model and strategy

Question 14

A business model deals with how a business makes customers want to buy their product.

Question 15

Which of the following is typically NOT one of the questions asked when analyzing a business' operations?

A)How is the business investing its money?
B)When was the business started?
C)Is the business a going concern?
D)Can the business pay its debt obligations?

Question 16

Kroger would probably benchmark with other:

A)general merchandise retailers.
B)big box retailers.
C)grocery chains.
D)companies that sell food.

Question 17

What is financial analysis?

A)The process of using value to create financial statements and related information
B)Creating value in a company
C)The process of using financial statements and related information to evaluate whether a company is creating value
D)The process of creating information related to the financial statements

Question 18

A business's competitive environment describes:

A)how a business competes for critical resources.
B)how a business is affected by the overall economy.
C)how a business uses its business model to create a competitive advantage.
D)how a business makes its product.

Question 19

A business model describes what a business does,what it sells,and who it sells to.

Question 20

The management discussion and analysis is typically located after the financial statements in a company's annual report.

Question 21

Operating profit (EBIT)is first used to pay dividends to a company's stockholders.

Question 22

Computing trend percentages over a period of years helps to indicate the direction in which the business is going.

Question 23

The most recent period in a horizontal analysis is called the base period.

Question 24

Common-size statements are useful when comparing a company's performance against that of a company of a different size.

Question 25

Most companies want a low inventory turnover ratio.

Question 26

A business's economic environment describes how a business:

A)competes for critical resources.
B)is affected by the overall economy.
C)uses its business model to create a competitive advantage.
D)makes its product.

Question 27

Common-size statements should NOT be used to compare a company's performance against a company of a different size.

Question 28

The base amounts for a vertical analysis are net income and total equity.

Question 29

In a vertical analysis,an item is selected as the base amount and all other items are computed as a percentage of the base amount.

Question 30

The formula for determining the percentage change in an account from one year to the next year is [(amount in later period - amount in earlier period)/ amount in earlier period] times 100.

Question 31

The return on assets measures the relationship between sales and average total assets.

Question 32

The fixed asset turnover ratio measures a company's ability to generate sales using all of its assets.

Question 33

In computing trend percentages,the most recent year amounts become the base and are always set to 100%.

Question 34

Knowing the dollar amount of change from year-to-year in an account is less relevant than knowing the percentage change.

Question 35

The three ways to analyze financial statements are by using horizontal,vertical and ratio analysis.

Question 36

Return on equity measures the relationship between net income and average total assets.

Question 37

Horizontal analysis is only done on the Income Statement.

Question 38

A useful tool to reduce the bias when comparing the performance of different sized companies is to do a horizontal analysis on each one.

Question 39

Determining the percentage changes in line items on financial statements for two consecutive years is called horizontal analysis.

Question 40

Common-size statements use the same percentages that are computed during a vertical analysis,but no dollar amounts are shown.

Question 41

Which would NOT be considered an extraordinary item?

A)Expropriation of a plant's assets in India
B)Tornado damage in Maine
C)Hurricane damage in Miami
D)Flood damage in Arizona

Question 42

The net working capital for a company with current assets of $70,000,quick assets of $30,000,total assets of $150,000,current liabilities of $50,000 and net sales of $80,000 would be:

A)$100,000.
B)$50,000.
C)$30,000.
D)$20,000.

Question 43

On the Income Statement,extraordinary items are reported:

A)immediately after the continuing operations section.
B)immediately before the discontinued operations section.
C)net of income tax or net of income tax savings.
D)before the operating income section.

Question 44

The net working capital for a company with current assets of $78,000,quick assets of $42,000,total assets of $177,000 current liabilities of $60,000 and net sales of $90,000 would be:

A)$60,000.
B)$30,000.
C)$18,000.
D)$117,000.

Question 45

Everyday business activities are reported in the:

A)continuing and discontinued operations section.
B)discontinued operations section.
C)continuing operations section.
D)extraordinary items section.

Question 46

After income from continuing operations,the next section on an Income Statement is:

A)earnings per share data.
B)discontinued operations.
C)continuing operations.
D)extraordinary items.

Question 47

Which section of the Income Statement is NOT reported net of income taxes or net of income tax savings?

A)All sections are reported net of taxes.
B)Discontinued operations section
C)Continuing operations section
D)Extraordinary items section

Question 48

Predictions about a company's future earnings can best be inferred from the:

A)earnings per share data.
B)discontinued operations section.
C)continuing operations section.
D)extraordinary items section.

Question 49

Ironworks,Inc.has a cash balance of $80,000;short-term investments of $20,000;net receivables of $60,000;and inventory of $450,000.Current liabilities total $200,000.Red Line's current ratio is:

A)3)05 to 1.
B)2)75 to 1.
C)0)80 to 1.
D)0)70 to 1.

Question 50

Gains and losses on plant,property,and equipment are reported:

A)as a retrospective application.
B)in the discontinued operations section.
C)in the continuing operations section.
D)in the extraordinary items section.

Question 51

The 2013 and 2014 balance sheets for Northwest Plumbing showed Cash of $6,500 and $8,000 respectively,Accounts Receivable of $15,000 and $18,000,respectively,Inventory of $12,500 and $9,500,respectively,and Accounts Payable of $5,000 and $8,000,respectively.Its 2014 Income Statement showed Net Sales of $116,000,Cost of Goods Sold of $58,000,and Net Income of $31,000.The cash conversion cycle for 2014 was (round calculations to two decimal places):

A)58.22 days.
B)80.24 days.
C)162.06 days.
D)23.60 days.

Question 52

On the Income Statement,the results of discontinued operations are reported:

A)as part of other income (expense).
B)immediately after the extraordinary items section.
C)net of income tax or net of income tax savings.
D)before the operating income section.

Question 53

Other income (such as rental income)and other expenses (such as interest expense)are listed immediately after:

A)gross profit.
B)operating expenses.
C)operating income.
D)income tax expense.

Question 54

Business activities that are unusual and infrequent in occurrence are reported in the:

A)other income (expense)section.
B)discontinued operations section.
C)continuing operations section.
D)extraordinary items section.

Question 55

The last section of an Income Statement report is:

A)extraordinary items.
B)discontinued operations.
C)continuing operations.
D)income tax expense.

Question 56

When a company sells off part of the business,this would be reported:

A)as a retrospective application.
B)in the discontinued operations section.
C)in the continuing operations section.
D)in the extraordinary items section.

Question 57

A(n)________ is a distinguishable part of a business that is subject to a different set of risks and returns than other parts of the business.

A)extraordinary event
B)business segment
C)product line
D)manufacturing line

Question 58

The current ratio for a company with current assets of $78,000,quick assets of $42,000,total assets of $177,000 current liabilities of $60,000 and net sales of $90,000 would be:

A)0)70.
B)2)95.
C)1)30.
D)1)50.

Question 59

Perkins Company has $56,000 in cash;$12,000 in Accounts Receivable;$25,000 in short-term investments and $100,000 in merchandise inventory.The company also has $60,000 in current liabilities.The company's current ratio is:

A)0)933.
B)1)550.
C)1)133.
D)3)217.

Question 60

The 2013 and 2014 balance sheets for Shadow Industries showed Cash of $8,000 and $9,500 respectively,Accounts Receivable of $14,000 and $16,000,respectively,Inventory of $11,000 and $8,000,respectively,and Accounts Payable of $5,000 and $7,000,respectively.Its 2014 Income Statement showed Net Sales of $108,000,Cost of Goods Sold of $62,000,and Net Income of $27,000.The cash conversion cycle for 2014 was (round calculations to two decimal places):

A)141.94 days.
B)40.56 days.
C)30.08 days.
D)71.30 days.

Question 61

A comparison of the amounts for the same item in the financial statements of two or more periods is called:

A)vertical analysis.
B)comparative analysis.
C)horizontal analysis.
D)trend analysis.

Question 62

If current assets were $100,000 in 2013 and $88,000 in 2014,what was the amount of increase or decrease in percentage terms from 2013 to 2014? (Round to the nearest percent. )

A)Increase of 14%
B)Decrease of 14%
C)Increase of 12%
D)Decrease of 12%

Question 63

Island Industries reported Net Sales of $306,000,Cost of Goods Sold of $192,600,Operating Expenses of $58,900,and Income Tax Expense of 12,300.Island Industries' gross profit margin percentage was:

A)37.06.
B)13.79.
C)62.94.
D)17.81.

Question 64

Which analysis deals with the percentage of changes in certain items over a period of years?

A)Horizontal analysis
B)Vertical analysis
C)Incremental analysis
D)Trend analysis

Question 65

Island Industries,Inc.reported Net Sales of $306,000,Cost of Goods Sold of $192,600,Operating Expenses of $58,900,and Income Tax Expense of 12,300.Island Industries' net income percentage was:

A)37.06.
B)13.79.
C)62.94.
D)17.81.

Question 66

Salty's Surfshop reported Net Sales of $258,000,Cost of Goods Sold of $110,500,Operating Expenses of $62,400,and Income Tax Expense of 21,600.Salty's net income percentage was:

A)32.98.
B)42.83.
C)57.17.
D)24.61.

Question 67

If cash is $4,450 in 2014 and $3,670 in 2013,what is the percent increase or decrease from 2013 to 2014?

A)+2.125.
B)+21.250.
C)-1.753.
D)+17.530.

Question 68

The sales of Dogs 'R Us for the years 2012,2013,and 2014 are $40,000,$60,000 and $80,000,respectively.If 2012 is the base year,the trend percentage for 2013 is:

A)0%.
B)150%.
C)200%.
D)133%.

Question 69

What was the percentage of change in Accounts Receivable if the balance was $80,000 in 2013 and $60,000 in 2014?

A)-25.00%.
B)+25.00%.
C)-33.33%.
D)+33.33%.

Question 70

Franklin Fisheries had extraordinary losses of $150,000.If their corporate tax rate is 30%,at what amount will the losses be shown on the Income Statement?

A)$150,000
B)$105,000
C)$45,000
D)Not enough information is given to answer the question.

Question 71

Salty's Surfshop reported Net Sales of $258,000,Cost of Goods Sold of $110,500,Operating Expenses of $62,400,and Income Tax Expense of 21,600.Salty's gross profit margin percentage was:

A)32.98.
B)42.83.
C)57.17.
D)24.61.

Question 72

Net income was $45,000 in 2013 and $60,000 in 2014.The percentage increase or decrease in net income from 2013 to 2014 was:

A)+33.33.
B)+133.33.
C)-25.00
D)-33.33.

Question 73

Moore Masonry has current assets of $52,100,long-term assets of $263,700,current liabilities of $39,600,and long-term debt of $156,700.Moore's debt ratio is:

A)74.4%.
B)49.6%.
C)62.2%.
D)59.4%.

Question 74

Native Nursery has cost of goods sold for the years 2014,2013 and 2012 respectively of $28,600,$26,900 and $25,600.If 2012 is the base year,the trend percentage for 2014 is:

A)111.72%.
B)11.72%.
C)105.08%.
D)5)08%.

Question 75

The revenue of Systems Design,Inc.for the years 2012,2013,and 2014 are $75,000,$100,000 and $200,000,respectively.If 2012 is the base year,the trend percentage for 2013 is:

A)33%.
B)100%.
C)133%.
D)(62.5%).

Question 76

Evergreen Supply Co.sells hiking and other outdoor equipment.It also sells a few trail books and outdoor guides about the area.In their Income Statement,the revenue from the books and guides would probably be recorded as:

A)operating income.
B)other income.
C)other expenses.
D)extraordinary income.

Question 77

Island Coffee's cash reported on the comparative Balance Sheet was $235,000 in 2013 and $245,300 in 2014.The percentage change in cash from 2013 to 2014 was:

A)+4.20%.
B)+4.38%.
C)-4.38%.
D)-4.20%.

Question 78

Woods Weatherproofing,Inc.has current assets of $43,600,long-term assets of $252,900,current liabilities of $41,400,and long-term debt of $129,800.Woods Weatherproofing,Inc.'s debt ratio is:

A)51.3%.
B)57.7%.
C)43.8%.
D)67.7%.

Question 79

TNT Guitar's sales were $13,444 in 2014 and $12,898 in 2013.The percentage change in TNT's sales from 2013 to 2014 was:

A)+4.06%.
B)-4.23%.
C)+4.23%.
D)-4.06%.

Question 80

Revere,Inc.reported $23,400 in A/R in 2014 and $25,100 in A/R in 2013.The percentage change in A/R from 2013 to 2014 was:

A)+6.77%.
B)+7.26%.
C)-6.77%.
D)-7.26%.