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Exam 13: Analysis of Financial Statements

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Question 41

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Use the following selected information from Whitman Corp. to determine the Year 1 and Year 2 common size percentages for cost of goods sold using Net sales as the base. $\begin{array}{lrr}& \text { Year } 2 & \text { Year } 1 \\\text { Net sales } & \$ 276,200 & \$ 231,400 \\\text { Cost of goods sold } & 151,900 & 129,590 \\\text { Operating expenses } & 55,240 & 53,240 \\\text { Net earnings } & 27,820 & 19,820\end{array}$

A) 36.4% for year 2 and 41.1% for year 1.
B) 55.0% for year 2 and 56.0% for year 1.
C) 119.4% for year 2 and 100.0% for year 1.
D) 117.2% for year 2 and 100.0% for year 1.
E) 65.1% for year 2 and 56.0% for year 1.

F) A) and E)
G) C) and D)

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Question 42

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The dollar change for a comparative financial statement item is calculated by:

A) Subtracting the analysis period amount from the fair value amount.
B) Subtracting the base period amount from the analysis period amount.
C) Subtracting the analysis period amount from the base period amount, dividing the result by the base period amount, then multiplying that amount by 100.
D) Subtracting the base period amount from the analysis period amount, dividing the result by the base period amount, then multiplying that amount by 100.
E) Subtracting the base period amount from the analysis amount, then dividing the result by the base amount

F) C) and E)
G) A) and D)

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Question 43

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Comparative statements for Warmer Corporation are shown below: Calculate trend percentages for all income statement amounts shown and comment on the results. Use Year 1 as the base year.Comment on the results.

The base amount for a common-size balance sheet is usually total assets.

The gross margin ratio, return on total assets, and basic earnings per share are all ________ ratios.

The current ratio is calculated as total assets divided by current assets.

Refer to the following selected financial information from Gomez Electronics. Compute the company's profit margin for Year 2. $\begin{array}{lrr}& \text { Year 2 } & \text { Year 1 } \\\text { Net sales } & \$ 478,500 & \$ 426,250 \\\text { Cost of goods sold } & 276,300 & 250,120 \\\text { Interest expense } & 9,700 & 10,700 \\\text { Net income before tax } & 67,250 & 52,680 \\\text { Net income after tax } & 46,050 & 39,900 \\\text { Total assets } & 317,100 & 288,000 \\\text { Total liabilities } & 181,400 & 167,300 \\\text { Total equity } & 135,700 & 120,700\end{array}$

The executive summary of a financial statement analysis report includes the evidential matter, assumptions, and inferences for the report.

Describe the purpose of horizontal financial statement analysis and how it is applied.

The comparison of a company's financial condition and performance across time is known as ________.

A common focus of financial statement users in evaluating a company's performance and financial condition includes evaluating its (1) ________, (2) ________, and (3) ________.

The purposes of financial statement analysis include all of the following except:

Match each of the following terms with the appropriate definitions.

Describe ratio analysis including its purpose, application, and interpretation.

Calculate the percent increases for each of the following selected balance sheet items.

Graphical analysis of the balance sheet can be useful in assessing sources of financing.

Trend analysis of financial statement items can include comparisons of relations between items on different financial statements.

A company with a high inventory turnover requires a smaller investment in inventory than one producing the same sales with a lower turnover.

A company that has days' sales uncollected of 30 days and days' sales in inventory of 18 days implies that inventory will be converted to cash in about 12 days.

Describe the purpose of vertical financial statement analysis and how it is applied.