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Exam 14: Analyzing Financial Statements

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Question 51

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Which of the following ratios is not an indicator of a company's short-term financial strength?

A) Price/earnings ratio
B) Receivable turnover ratio
C) Working capital
D) Quick ratio

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

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Question 52

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Which of the following transactions doesn't affect earnings per share?

A) A 2-for-1 common stock split.
B) A 10% common stock dividend distribution.
C) Accruing revenue at year-end.
D) Issuing additional shares of preferred stock.

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

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Question 53

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Which ratio reflects the stock market's assessment of a company's future performance?

Walkers World Company gathered the following information for 2010: $\begin{array} { l r } \text { Total sales revenue ( } 65 \% \text { on credit) } & \$ 432,000 \\\text { Cost of goods sold } & 231,000 \\\text { Sales returns and allowances (on credit) } & 44,000 \\\text { Accounts receivable at end of } 2010 ( \$ 30,000 & 100,000 \\\text { increase during } 2010 ) & \\\text { Allowance for doubtful accounts: } & \\\text { Beginning of } 2010 & 7,000 \\\text { End of } 2010 & 28,000 \\\text { Merchandise inventory at end of } 2010 ( \$ 10,000 & \\\text { decrease during } 2010 ) &\end{array}$ Assume 365 days in the year. Calculate each of the following ratios: A.Receivable turnover ratio B.Average number of days to collect C.Inventory turnover ratio D.Average number of days' supply of inventory

Which of the following is not a measure of solvency?

Main Street Company paid out $2.30 in dividends per share and had earnings per share of $5.00 during 2010.The market price of the stock on December 31,2010 was $21.00 per share.There were 15,000 shares of stock outstanding for the entire year.What was the dividend yield as of December 31,2010?

Lee Company has provided the following information: Cash flow from operating activities,$240,000; Net income,$204,000; Interest expense,$20,000; Interest cash payments,$10,000; Income tax payments,$140,000; Income tax expense,$136,000. What was Lee's quality of income ratio?

The journal entry to record depreciation expense decreases which of the following ratios?

Potaw Company reported the following data at the end of 2010: $\begin{array} { l r } \text { Sales revenue } ( 75 \% \text { on credit) } & \$ 300,000 \\\text { Expenses ( } 26 \% \text { on credit) } & 60,000 \\\text { Accounts receivable, net at December } 31,2010 \text { (a decrease } & \\\text { of } \$ 4,000 \text { during } 2010 ) & 8,000 \\\text { Total assets } & 200,000 \\\text { Stockholders' equity } & 150,000\end{array}$ What was the accounts receivable turnover ratio?

Negative financial leverage occurs when a company has more debt than stockholders' equity.

Which of the following statements is incorrect?

Which of the following transactions decreases earnings per share?

Which of the following ratios are not affected by issuing long-term bonds payable in exchange for cash?

MusicPod's earnings per share ratios were $2.47 and $2.07 respectively for 2011 and 2010.MusicPod's stock was trading at $53.00 and $41.50 per share at the end of 2011 and 2010 respectively.The company paid cash dividends per share of $.85 in 2011 and $.63 in 2010.Total stockholders' equity was $13,572 million and $11,896 million in 2011 and 2010 respectively.The common shares outstanding were approximately 1,782,000 in both 2011 and 2010.What was MusicPod's price/earnings ratio for 2011?

Dividend yield is calculated by dividing dividends per share by earnings per share and measures the current dividend return to investors.

At the end of 2010,Jared Corporation reported a return on assets of 16%; net income of $42,000; average total assets of $365,000,and average total liabilities of $165,000.What was Jared's financial leverage percentage?

Compete Corporation reported a quick ratio of 1.75,current assets of $50,000 and a current ratio of 2. Requirements:

Negative financial leverage occurs when the

At the end of 2010,Doran Corporation reported net income of $70,000,gross sales revenue of $1,525,000,and sales returns of $125,000.Calculate the profit margin ratio.

The 2010 financial statements of Companies Y and Z showed the following: $\begin{array}{l}\begin{array} { l }\underline { \text { Item } } \\\text { Net sales revenue } \\\text { Profit margin }\\\text { Total average assets }\\\text { Financial leverage percentage } \\\text { Interest expense (net of tax) }\end{array}\begin{array} { l } \quad \quad \quad\underline { \text { Company } } \\\underline{\underline{Y}} & \underline{Z} \\\$ 150,000 & \$ 200,000 \\6 \% & 5 \% \\\$ 40,000 & \$ 80,000 \\+4 \% & +3 \% \\\$ 1,000 & \$ 800\end{array}\end{array}$ Part A: For each company,calculate the items listed in the following tabulation. Part B: Assuming both Company Y and Company Z are in the same industry,which company (Y or Z)appears to be the better investment and why?