EXERCISES (Financial Statement Analysis) Ex. 4. Match the term below to the correct definition working capital acid test ratio times interest earned ratio current ratio. vertical analysis horizontal analysis seaoge © _ Analysis of a financial statement that reveals the relationship of each statement item to the total, which is 100% Q-_ Current assets less current liabilities -_ Study of percentage changes in comparative financial statements ‘D-— Ratio of most highly liquid current assets to current liabilities ‘G Ratio of interest to creditors [Current assets divided by current liabilities Ex. 2. The following table shows selected data for Browning Corporation for the past four years ended December 31, 20X8: 20X8 20X7, 20X6_ 20X5 Net credit sales. $20,300 $18,400 $17,200 $15,500 Cost of goods sold 9,500 10,300. 9,500 _ 8,900 Invenio 73.000 42.200 8 700 3500 Net accounts recewabie | — 7,500 6.800 7200 7000 a ee 2. Whatwas the accounts receivable turnover for 20X87 "a “pea “2% B.What was the inventory tumover or 20X77 sth, 02 ay Soy Bir Ex. 3. From the given data, calculate the following ratios for the Heedy Corporation for 20X6. a. current ratio 51040 : b. quick ratio a et Woon * 22 ¢. debt to total assets ratio ae of an o. Sh Be & Accounts payable $74,000 * Accounts receivable 75,000 c. Th, WSOP. 39 @ Cash 125,000 a * Monod * = Inventory 90,000 « Short-term investments 60,000 ‘& Short-term notes payable 40,000 m- Notes payable (due in 20X9) 50,000 Total assets 469,000 Total liabilities 185,000 Net sales. 240,000 Net income 31,500 Ex. 4. Comparative information taken from the Fottern Company financial statements is shown below: — 2005 _ 2004 - as (a) Accounts receivable 175,000 140,000 198.00) 2.08) (b) Retained earnings 30,000 (40,000) » uae (c) Sales 855,000 750,000 F,am)smma «ot 7 (a) Operating expenses 170,000 200000 tw.an]2m.a0+ 75 {e) Income taxes payable 22,000 20,000 2.2009 * \-\ Instructions Using horizontal analysis, show the percentage change from 2004 to 2005 with 2004 as the base year.1.A comparative financial statement A) Places the balance sheet, the income statement and the statement of cash flows side by side in order to compare the results, @Piaces two oF more years ofa financial statement side by side in one o compare results ©) Places the financial statements of two or more companies side by side in order to compare results D) Places the dollar amounts next to the percentage amounts of @ given year for the income statement, 2:The changes in financial statement items from a base year to following years are called ‘A) Money changes @)Trend percentages ©) Component percentages D) Ratios 3:The measurement of the relative sizeof each item included ina total is called: ‘A) Money changes B) Trend pereentages ©Component perventages D) Ratios 4, One number expressed as a percentage of another is called: ‘A) Money changes B) Trend percentages ©) Component percentages Oasis 5. The excess of current assets over current liabilities is called: A) Current ratio @®Wworking Capital ©) Debt Ratio D) Quick Ratio 6, Quick assets include Osis marketable securities and receivables ) Cash, marketable securities and inventories C) Cash, inventories and receivables 1D) Market securities, receivables and inventories, 7. The ratio which measures total liabilities as a percentage of total assets is called: A) Current rat Working capital C)pebt ratio D) Quick ratio8. The price/earnings ratio is measured by dividing A) Book value by earnings per share B) Par value by earnings per shate )Market value by earnings per share D) Market value by total net income 9. The principle factors affecting the quality of working capital are: A) The nature of the current assets B) The length of time to convert current assets into cash Ost a D) Neither A nor B 10.All of the following ratios are considered measures of profitability except: A) Eamings per share B) Gross profit rate Price earings ratio D) Return on assets 11, All of the following ratios are considered measures of liqui AQ Quick ratio bt ratio C) Current Ratio D) Receivables turnover rate except 12.Comparative financial statements compare the company's current statements with: se of prior periods B) Those of other companies in the same industry. €) Those of the company's principal competitor 1D) The budgeted level of performance for the period. I3.Which of the following is not a measure of short-term liquidity? A) Quick ratio. B) Working capital. C) Current ratio. (Boeri rato 14.The current ratio will be__ the quick ratio. A) Less than BGreater than or equal to. (©) The same as. D) Always different than.15.. Which ofthe following is nota measure of long-term credit risk? Bouiek ratio. B) Debt ratio, ©) Imerest coverage ratio. D) Trend in net cash provided by operating activities 16.. A high quality of earnings is indicated by: anings derived largely from newly introduced products. B) Declaration of both cash and stock dividends. ©) Use of the FIFO method of inventory during sustained inflation, Ds history of increasing earnings and conservative accounting methods, 17. The measures most often used in evaluating solvency-the current ratio, quick ratio, and amount of working capital are developed from amounts appearing in the Appstace sheet. ) Income statement, ) Statement of retained earnings. D) Statement of cash flows. 18, Which American industry would tend to have the greatest debt ratio’ A) Auto. B) Retail clothing. (©) Manufacturing inking, g The coment Gi cmp ty cing cure nt yrit ee compe by staan cones bien cen C) Remains unchanged throughout the operating cycle bys aeons of ren prota 20. Component percentages indicate the relative size of each item included in a total. Which of the following statements is true? A) Income statement items are expressed as a percentage of net income and balance sheet items as a reemtage of total assets. Pereemtage of total assets. ) Income statement items are expressed as a percentage of net income and balance sheet items as a percentage of net worth, D) Both income statement and balance sheet items are expressed as a percentage of net wort,