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Exam 12: Financial Analysis: The Big Picture

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Question 41

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If Year 1 equals $700, Year 2 equals $840, and Year 3 equals $630, the percentage to be assigned for Year 1 in a trend analysis, assuming that Year 1 is the base year, is

A) 100%.
B) 90%.
C) 111%.
D) 120%.

E) B) and C)
F) None of the above

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Question 42

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The asset turnover measures

A) how often a company replaces its assets.
B) how efficiently a company uses its assets to generate sales.
C) the portion of the assets that have been financed by creditors.
D) the overall rate of return on assets.

E) C) and D)
F) A) and B)

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Question 43

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All of the following statements are true regarding comprehensive income except

Net sales are $2,700,000, beginning total assets are $700,000, and the asset turnover is 3.0. What is the ending total asset balance?

Cochran Corporation, Inc. has the following income statement (in millions) : COCHRAN CORPORATION, INC. Income Statement For the Year Ended December 31, 2017 $\begin{array}{lr}\text { Net Sales } & \$ 240 \\\text { Cost of Goods Sold } & 150 \\\text { Gross Profit } & 90 \\\text { Operating Expenses } & \$ 65 \\\text { Net Income } & \$ 25\end{array}$ Using vertical analysis, what percentage is assigned to net income?

In horizontal analysis, the base year is the most current year being examined.

Comparisons of company data with industry averages provide information about a company's relative position within the industry.

Horizontal, vertical, and circular analyses are the basic tools of financial statement analysis.

The following information pertains to Unique Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. $\begin{array}{lr}\text { Assets }\\\text { Cash and short-term investments } & \$ 40,000 \\\text { Accounts receivable (net) } & 25,000 \\\text { Inventory } & 20,000 \\\text { Property, plant and equipment } & 210,000 \\\text { Total Assets } & \$ 295,000 \\\\\text { Liabilities and Stockholders' Equity }\\\text { Current liabilities } & \$ 60,000 \\\text { Long-term liabilities } & 85,000 \\\text { Stockholders' equity-Common } & 150,000 \\\text { Total Liabilities and Stockholders' Equity } & \$ 295,000\\\\\text { Income Statement }\\\text { Sales revenue } & \$ 85,000 \\\text { Cost of goods sold } & 45,000 \\\text { Gross margin } & 40,000 \\\text { Operating expenses } & 20,000 \\\text { Net income } & \$ 20,000\\\\\text { Number of shares of common stock } & 6,000 \\\text { Market price of common stock } & \$ 20 \\\text { Dividends per share on common stock } & 0.90 \\\text { Cash provided by operations } & \$ 30,000\end{array}$ What is the inventory turnover for this company?

A high accounts receivable turnover indicates

Inventory turnover is a measure of liquidity that focuses on efficient use of inventory.

Inventory turnover measures the number of times on average the inventory was sold during the period.

Another name for horizontal analysis is trend analysis.

If Year 1 equals $780, Year 2 equals $819, and Year 3 equals $896, the percentage to be assigned for Year 2 in a trend analysis, assuming that Year 1 is the base year, is

Analysts are interested in sustainable income, which is equal to the past year's net income.

A solvency ratio measures the income or operating success of a company for a given period of time.

In a common size balance sheet, the 100 percent figure is

The following information pertains to Blue Flower Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. $\begin{array}{lr}\text { Assets }\\\text { Cash and short-term investments } & \$ 45,000 \\\text { Accounts receivable (net) } & 30,000 \\\text { Inventory } & 25,000 \\\text { Property, plant and equipment } & 210,000 \\\text { Total Assets } & \$ 310,000 \\\\\text { Liabilities and Stockholders' Equity }\\\text { Current liabilities } & \$ 60,000 \\\text { Long-term liabilities } & 95,000 \\\text { Stockholders' equity-common } & 155,000 \\\text { Total Liabilities and Stockholders' Equity } & \$ 310,000\\\\\text { Income Statement }\\\text { Sales revenue } & \$ 116,000 \\\text { Cost of goods sold } & 66,000 \\\text { Gross margin } & 50,000 \\\text { Operating expenses } & \$ 30,000 \\\text { Net income } & \$ 20,000\\\\\text { Number of shares of common stock } & 6,000 \\\text { Market price of common stock } & \$ 20 \\\text { Dividends per share on common stock } & .50 \\\text { Cash provided by operations } & \$ 35,000\end{array}$ What is the return on assets for this company?

Horizontal analysis is also known as

Tito Corporation had net income of $2,000,000 and paid dividends to common stockholders of $300,000 in 2017. The weighted average number of shares outstanding in 2017 was 400,000 shares. Tito Corporation's common stock is selling for $50 per share on the NASDAQ. Tito Corporation's price-earnings ratio is