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Exam 14: Financial Statement Analysis Available Online in Connect

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Question 21

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Lilly Corporation has working capital of $620,000, and Harmon Corporation has working capital of $840,000. Which of the following statements is not true?

A) The current assets of both corporations are greater than the current liabilities.
B) Since working capital is an absolute amount, other factors such as size of the company and materiality will help to determine liquidity of these two companies.
C) Since Harmon's working capital exceeds Lilly's working capital, it is safe to conclude that Harmon is more liquid than Lilly.
D) If Lilly Corporation is smaller than Harmon or has lower current liabilities; Lilly could be more liquid than Harmon.

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

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Question 22

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The return on investment measure is also referred to as:

A) Net margin.
B) Return on equity.
C) Return on debt.
D) Return on assets.

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

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Question 23

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The following balance sheet information is provided for Apex Company for Year 2: What is the company's working capital?

Which of the following statements regarding the quick ratio is not true?

The Poole Company reported the following income for Year 2: What is the company's net margin?

Indicate whether each of the following statements is true or false.________ a)Some forms of financial statement analysis involve identifying changes in the same item for the same company over a period of time.________ b)Some forms of financial statement analysis involve comparing operations of different companies in the same industry.________ c)Vertical analysis is also called trend analysis.________ d)Vertical analysis refers to studying the behavior of individual financial statement items over several periods.________ e)Horizontal analysis could be done using changes in the absolute dollar amount of an item or trends in percentages.

The following balance sheet information is provided for Santana Company for Year 2: What is the company's debt to equity ratio?

The following information is from the financial records of Newton Company for Year 2: Required:Calculate the number of times interest is earned for Newton in Year 2. Round your answer to one decimal place.

The current ratio is one of the most common measures of solvency.

Selected financial information for Martin Company for Year 2 follows: Required:How many times did Martin's merchandise inventory turnover during Year 2? Round your answer to one decimal place.

Abel Company provided the following information from its financial records: What is the company's earnings per share?

Indicate whether each of the following statements about financial statement analysis is true or false.________ a)The reason behind a financial statement ratio or percentage analysis result is usually self-evident and does not require further study or analysis.________ b)In horizontal percentage analysis, an item from the financial statements is expressed as a percentage of the same item from a previous year's financial statements.________ c)Horizontal analysis for several years can be done by choosing one year as a base year and calculating increases or decreases in relation to that year.________ d)One form of horizontal analysis is the preparation of common size financial statements.________ e)Vertical analysis compares two or more financial statement items within the same time period.

Assume that you are considering purchasing some of a company's long-term bonds as an investment. Which of the company's financial statement ratios would you probably be most interested in?

The following income statement was prepared by Case Company for Year 2: Required:Perform vertical analysis for Case Company's Year 2 income statement.

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

Gamma Company and Chi Company are similar and similar-sized companies operating in the same industry. At the end of the most recent year, Gamma's price-earnings ratio was 22.0, and Chi's price-earnings ratio was 14.2. What conclusion would you draw based on the difference in price-earnings ratios for the two companies?

Comparative income statements for Chicago Company are provided below: Required:Perform a horizontal analysis of Chicago Company's income statement by computing horizontal percentages for each item. Round your answer to one decimal place (i.e. 22.5%).

For Perez Corporation, return on equity is substantially higher than return on investment. What does that tell you about the company?

The drawback of studying absolute amounts reported in financial statements is the problem of differing materiality levels.

The following balance sheet information is provided for Greene Company for Year 2: What is the company's quick (acid-test) ratio? (Round your answer to 2 decimal places.)