Deck 4: Analysis of Financial Statements

Question 1

indicate what price investors are willing to pay for ownership in the company.

A)Market ratios
B)Liquidity ratios
C)Leverage ratios
D)Activity ratios
E)Profitability ratios

Answer 1

Market ratios

Question 2

The balance sheet for Jim's Hardware has the following items listed.Current Liabilities,$25,345;Long Term Debt,$100,000;Total Liabilities,$125,345;Total Assets,$325,490.What is the Owner's Equity for this company?

A)$225,490
B)$200,145
C)$25,345
D)Cannot calculate with the information provided.

Answer 2

$200,145

Question 3

A company has the following information on their income statement and balance sheet.Total Sales $345,678,Returns and Allowances $15,500,Cost of Goods Sold $175,000,Total Assets $500,000,Current Assets $25,000.What is their Fixed Asset Turnover ratio?

A)0)368
B)0)695
C)0)691
D)0)660
E)0)728

Answer 3

0)695

Question 4

In 2005 the Handy Yogurt shop had $345,265 in gross revenues,in 2006 they had $357,388.What is the percentage change in sales?

A)3)51%
B)- 3.39%
C)3)39%
D)- 3.51%

Question 5

In 2005,The Handy Catering Service had cash sales of 254,134,credit sales of 125,371,and total sales of 379,505.Accounts Receivable were 9,765.If there are 365 days in 2005,what was the Average Collection Period?

A)14.03 days
B)9)39 days
C)28.43 days
D)18.78 days
E)There is not enough information provided to answer this question.

Question 6

are used to measure the ability of a firm to meet its short term creditor's claims.

A)Profitability ratios
B)Leverage ratios
C)Market ratios
D)Activity ratios
E)Liquidity ratios

Question 7

In 2005,Joan had Cost of Goods of 58,358;in 2006,they were 65,069.On the last day 2005 her inventory was 675,and on the last day of 2006 it was 1,559.What is the Inventory Turnover for Joan's Coffee Shop for 2006?

A)58.25
B)52.25
C)41.74
D)55.25

Question 8

The Handy Dandy Corporation has an income statement which indicates that Earnings Before Taxes is $2,375,486 and it pays taxes at 35% of earnings.The Corporation currently has 1 million shares of common stock outstanding and does not issue preferred stock.What is this corporation's approximate Earnings per Share?

A)$2.38
B)$1.54
C)$0.42
D)$0.65

Question 9

indicate how much of a company's net worth and asset commitment is being financed with debt.

A)Liquidity ratios
B)Market ratios
C)Profitability ratios
D)Activity ratios
E)Leverage ratios

Question 10

The balance sheet for Jim's Hardware has the following items listed.Current Liabilities,$25,345;Long Term Debt,$100,000;Total Liabilities,$125,345;Total Assets,$325,490.What is the Debt to Equity Ratio for this company?

A)0)198
B)0)307
C)0)626
D)0)499
E)0)385

Question 11

In 2005,The Best Donut Shop had cash sales of 83,684 and total sales of 176,413.Accounts Receivable were 3,275.What was Accounts Receivable Turnover?

A)53.37
B)28.31
C)25.55
D)39.71

Question 12

The Handy Dandy Corporation has an income statement which indicates that Operating Income is $2,375,486 and Net Profit is $1,375,486.The Corporation currently has 2 million shares of common stock outstanding and 1 million shares of preferred stock which pays a dividend of $1.00 per share.What is this corporation's approximate Earnings per Share?

A)$0.69
B)$0.19
C)$0.79
D)$0.46
E)$1.18

Question 13

The U.S.Government raised the minimum wage from $4.75 to $5.25 between 1996 and 1997.What was the percentage change in the minimum wage?

A)- 9.52
B)9)52
C)- 10.53
D)10.53

Question 14

Earnings per share:

A)may overstate the profitability of the company.
B)is easy to manipulate.
C)does not separate cash sales from credit sales on the income statement.
D)all of the above.

Question 15

Last year Sam earned $25,000 and received no bonus.This year he earned the same amount but received a $2,000 bonus.What was the percentage change in his annual earnings?

A)- 92.00
B)- 11.20
C)7.41
D)8.00.

Question 16

Carl's Toy Factory had the following items listed on its balance sheet.Cash,1,590;Accounts receivable,5,746;Accounts payable,9,563;Inventory,7,879;Equipment,35,743;Land,50,000;Buildings,135,487;Mortgage,125,276.Based on this information what was Carl's quick ratio?

A)2)14
B)0)77
C)1)37
D)1)59

Question 17

We can obtain the financial reports of publicly held corporations by

A)reading trade journals.
B)using EDGAR on the Internet.
C)using published data in sources such as Value Line.
D)calling the company directly.
E)all of the above.

Question 18

In 2004,James had Cost of Goods of 358,358,in 2005,they were 365,069.On the last day 2004 his inventory was 45,675,and on the last day of 2005 it was 51,559.What is the Inventory Turnover for James' Television Sales Shop for 2005?

A)7)51
B)7)37
C)7)44
D)7)34

Question 19

Liquidity ratios can be obtained from information on the Balance Sheet,while Activity Ratios require information obtained from the

A)income statement,balance sheet and statement of cash flows.
B)income statement only.
C)income statement and balance sheet.
D)balance sheet only.
E)none of the above

Question 20

The Handy Dandy Corporation has an income statement which indicates that Operating Income is $2,375,486 and Net Profit is $1,375,486.The Corporation currently has 2 million shares of common stock outstanding and does not issue preferred stock.What is this corporation's approximate Earnings per Share?

A)$1.18
B)$0.19
C)$0.69
D)$0.79
E)$0.46

Question 21

Carl's Toy Factory had the following items listed on its balance sheet.Cash,1,590;Accounts receivable,5,746;Accounts payable,9,563;Inventory,7,879;Equipment,35,743;Land,50,000;Buildings,135,487;Mortgage,125,276.Based on this information what was Carl's current ratio?

A)0)77
B)1)59
C)2)14
D)1)37

Question 22

determine how well the firm is using its assets and sales revenue to generate a positive return for its owners.

A)Leverage ratios
B)Market ratios
C)Liquidity ratios
D)Profitability ratios
E)Activity ratios

Question 23

Liquidity ratios include the

A)inventory turnover ratio.
B)A and B above.
C)current ratio.
D)A and C above.
E)quick ratio.

Question 24

Earnings per share differs from operating cash flow per share in that:

A)EPS uses net income and operating cash flow uses actual cash flow per share.
B)EPS is a market ratio.
C)EPS uses less shares in its calculation than cash flow per share does.
D)EPS uses the balance sheet and the income statement.

Question 25

In 2005,The Handy Catering Service had cash sales of 254,134,credit sales of 125,371,and total sales of 379,505.Accounts Receivable were 9,765.What was Accounts Receivable Turnover?

A)33.36
B)19.43
C)26.02
D)12.84
E)There is not enough information provided to answer this question.

Question 26

As long as you choose your method of financial analysis carefully,any single method will provide you with enough information to completely evaluate your firm

Question 27

In 2003 the Handy Yogurt shop had $267,386 in gross revenues,in 2004 they had $215,398.What is the percentage change in sales?

A)24.14%
B)- 19.44%
C)19.44%
D)- 24.14%

Question 28

Operating Cash Flow per share

A)uses information from the balance sheet and the statement of cash flows.
B)uses information from the statement of cash flows and the income statement.
C)uses information from the income statement and the balance sheet.
D)all of the above.

Question 29

When comparing income statement items to balance sheet items in a single ratio we use the average of the items on the income statement.

Question 30

If a company has annual credit sales of 345,279 and accounts receivable of 10,000,using a 365 day year,what is its Average Collection Period?

A)27.40 days
B)10.57 days
C)34.43 days
D)94.59 days

Question 31

Activity ratios indicate how efficiently a business is using its assets.

Question 32

Leverage ratios measure the firm's ability to use its own money to fund operations.

Question 33

Market ratios indicate what price investors are willing to pay for ownership in the company.

Question 34

Activity ratios include

A)fixed asset turnover.
B)inventory turnover.
C)accounts receivable turnover.
D)total asset turnover.
E)all of the above.

Question 35

Vertical analysis of an income statement is obtained by using Net Sales as a constant and dividing every figure on the income statement by Net Sales.

Question 36

are used to determine how well a company is managing its assets.

A)Leverage ratios
B)Activity ratios
C)Market ratios
D)Liquidity ratios
E)Profitability ratios

Question 37

Too much credit sales may overstate the earnings of a company.

Question 38

If a company's stock currently sells in the marketplace for $55 per share,and the book value of this stock is $25 per share,what is the Price Earnings ratio if the Earnings per Share is $3.00?

A)8)33
B)0)12
C)18.33
D)0)05

Question 39

Which of the following formulas is used to determine Fixed Asset Turnover?

A)fixed assets/net sales
B)net sales/fixed assets
C)gross sales/fixed assets
D)cost of goods sold/fixed assets
E)fixed assets/gross sales

Question 40

It is advantageous for managers to increase debt financing and exhibit an increased ROE.

Question 41

The higher the accounts receivable turnover the lower the average collection period.

Question 42

The current ratio is calculated by dividing current assets by current liabilities.

Question 43

If the total asset turnover ratio is less than one then the average total assets are not generating enough sales.

Question 44

Horizontal Analysis is obtained by determining the percentage change in an account from a base period to a successive time period.

Question 45

If a company has no debt financing,its return on equity equals its return on assets.

Question 46

Profitability ratios determine how well a firm is using its assets and sales revenue to generate a positive return for its owners.

Question 47

As the debt to asset ratio increases,the ROE decreases.

Question 48

If a company has a 70 percent debt to total assets ratio,approximately 70 cents of every dollar of assets is owed to the company creditors.

Question 49

There is more than one way to calculate the ROE.

Question 50

The current ratio is calculated by dividing current assets - inventory by current liabilities.

Question 51

If a company has a 70 percent debt to total assets ratio,approximately 70 cents of every dollar of assets is owned by the company.

Question 52

Liquidity ratios measure the ability of a firm to meet its long- term obligations.

Question 53

The operating cash flow per share ratio uses information from the statement of cash flows and the income statement.

Question 54

When comparing income statement items to balance sheet items in a single ratio we use the average of the items on the balance sheet.

Question 55

Vertical analysis of a balance sheet is obtained by using Total Assets as a constant and dividing every figure on the balance sheet by Total Assets.

Question 56

Vertical analysis of an income statement is obtained by using Net Profit as a constant and dividing every figure on the income statement by Net Profit.

Question 57

Operating cash flow per share is a much better predictor of company stability than earnings per share.

Question 58

Market ratios determine how well a company is marketing its products.

Question 59

A ratio is a relationship between two numbers,expressed as a fraction.

Question 60

Vertical analysis of a balance sheet is obtained by using Total Liabilities as a constant and dividing every figure on the balance sheet by Total Liabilities.

Question 61

Horizontal Analysis is obtained by determining the dollar value change in an account from a base period to a successive time period.

Question 62

A single ratio always provides us with meaningful information.