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Exam 23: Financial Statement Analyses

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Question 21

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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.

A) True
B) False

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Question 22

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

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B) False

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Question 23

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

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

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

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.

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%.

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

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.

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.

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

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

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

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.

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

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

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