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Exam 13: Financial Statement Analysis

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Question 1

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Miller Company reported gross sales of $850,000,sales returns and allowances of $15,000 and sales discounts of $5,000.The company has average total assets of $500,000,of which $250,000 is property,plant,and equipment.What is the company's asset turnover ratio?

A) 3.32 times
B) 1.67 times
C) 1.66 times
D) 1.70 times

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Question 2

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Which of the following statement is correct regarding the quick ratio?

A) The numerator for the quick ratio is current assets minus inventory minus accounts receivable.
B) The numerator for the quick ratio is current assets.
C) The quick ratio is also called the working capital ratio.
D) The quick ratio is a more conservative variation of the current ratio.

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Question 3

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As of December 31,Year 1,Gant Corporation had a current ratio of 1.29,quick ratio of 1.05,and working capital of $18,000.The company uses a perpetual inventory system and sells merchandise for more than it cost.On January 1,Year 2,Gant issued common stock at par value for $10,000 cash.Which of the following statements is true?

Vertical analysis always involves comparing financial statement elements over a span of time.

In terms of solvency,the larger the number of times interest is earned,the better.

All of the following are considered to be measures of a company's short-term debt-paying ability except:

The most frequently quoted measure of earnings performance is the stockholders' equity ratio.

Which ratio would you use to examine a company's ability to pay its debts in the short-term?

The following balance sheet information is provided for Gaynor Company: Assuming Year 2 cost of goods sold is $153,300,what is the company's inventory turnover?

Milton Company has total current assets of $46,000,including inventory of $10,000,and current liabilities of $20,000.The company's current ratio is:

As of December 31,Year 1,Gant Corporation had a current ratio of 1.29,quick ratio of 1.05,and working capital of $18,000.The company uses a perpetual inventory system and sells merchandise for more than it cost.On January 1,Year 2,Gant collected $5,200 of accounts receivable.As a result of this transaction,Gant's working capital will:

Financial analysis typically involves some form of comparison such as changes in the same item over a number of years.

Which ratio measures how effectively a company is using assets to generate revenue?

The following balance sheet information was provided by O'Connor Company: Assuming that net credit sales for Year 2 totaled $270,000,what is the company's most recent accounts receivable turnover?

Knell Company paid its sales employees $15,000 in sales commissions.What impact will this transaction have on the firm's working capital?

When debt is used to finance the purchase of assets,the term or time span of the debt should always be shorter than the lifespan of the assets.

The study of an individual financial statement item over several accounting periods is called:

Financial ratios can be used to assess which of the following aspects of a firm's performance?

Short-term creditors are usually most interested in assessing:

Financial ratio analysis is a form of horizontal analysis in that comparisons are made between different accounts in the same set of financial statements.