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Exam 17: Analysis of Financial Statements

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Question 61

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Working capital is computed as current liabilities minus current assets.

A) True
B) False

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Question 62

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Liquidity refers to the availability of resources to meet short-term cash requirements.

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B) False

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Question 63

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A trend percent,or index number,is calculated by dividing the analysis period amount by the base period amount and multiplying the result by 100.

Evaluation of company performance does not include analysis of (1)past and current performance,(2)current financial position,and (3)future performance and risk.

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

The ability to provide financial rewards sufficient to attract and retain financing is called:

External users of financial information:

What is the purpose of a good financial statement analysis report? What are the key components?

Measures taken from a selected competitor or a group of competitors are often excellent standards of comparison for analysis.

Selected current year company information follows: The return on total assets is:

Use the following selected information from Farris,LLC to determine the Year 2 and Year 1 common size percents for operating expenses using Year 1 net sales as the base.

A good financial statement analysis report usually includes the following six sections: (1)________________________,(2)______________________,(3)_________________,(4)__________________ (5)____________________,and (6)______________________.

The background on a company,its industry,and its economic setting is usually included in which of the following sections of a financial statement analysis report:

Financial information for Omega Corporation is presented below.Calculate the following ratios for 2014: (a)Inventory turnover. (b)Accounts receivable turnover. (c)Return on total assets. (d)Times interest earned. (e)Total asset turnover.

The measurement of key relationships between financial statement items is known as ________________.

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

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

Selected current year end financial information for a company is presented below.Calculate the following company ratios: (a)Profit margin. (b)Total asset turnover. (c)Return on total assets. (d)Return on common stockholders' equity (assume the company has no preferred stock). Net income……………………………….. $ 325,000 Net sales………………………………….. 4,700,000 Total liabilities,beginning-year………….. 550,000 Total liabilities,end-of-year……………… 530,000 Total stockholders' equity,beginning-year. 760,000 Total stockholders' equity,end-of-year….. 745,000

______________________ ratios include the price-earnings ratio and dividend yield.

One purpose of financial statement analysis for internal users is to provide information helpful in improving the company's efficiency and effectiveness in providing products and services.