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Exam 12: Financial Statement Analysis

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Question 1

True/False

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Value stocks have lower share prices in relationship to their fundamental ratios,and therefore,trade at lower PE ratios.

A) True
B) False

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Question 2

Multiple Choice

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Recent financial statement data for Harmony Health Foods (HHF) Inc.is shown below.HHF's times interest earned ratio is (rounded to two decimal places) : $\begin{array} { | l | r | l | r | } \hline \text { Current liabilities } & \$ 180 & \text { Income before interest and taxes } & \$ 125 \\\hline 10 \% \text { Bonds, long-term } & \underline{360} & \text { Interest expense } & \underline{36} \\\hline \text { Total liabilities } & \underline{540} & \text { Income betore tax } & 89 \\\hline \text { Stockholders' equity } & & \text { Income tax } & 27 \\\hline \text { Common stock } & 200 & \text { Net income } & \underline{\$ 62} \\\hline \text { Retained earnings } & 280 & & \\\hline \text { Total stockholders' equity } & \underline{480} & & \\\hline \text { Total liabilities and equity } & \$ 1,020 & & \\\hline\end{array}$

A) 3.47.
B) 1.72.
C) 2.47.

D) A) and C)
E) None of the above

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Question 3

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Comparing operating expenses as a percentage of sales is an example of:

Brady's Inflation Needle Co.reports accounts receivable of $100,000 in 2017 and $250,000 in 2018.Using horizontal analysis,what would be the percentage increase or decrease in accounts receivable?

The gross profit ratio is calculated as gross profit divided by net sales.

Which of the following is a positive sign that a company is selling its inventory quickly?

Every liquidity ratio is calculated using one or more current asset accounts.

Common-size analysis is another term used for ____ analysis.

A low receivables turnover ratio is a positive sign that a company can quickly turn its receivables into cash.A high receivables turnover ratio is a positive sign that a company can quickly turn its receivables into cash.

The financial statements of a firm that uses more conservative accounting practices would be likely to report:

Which of the following is correct?

Which of the following is an aggressive accounting practice?

The financial statements of a firm that uses more aggressive accounting practices would be likely to report:

Which of the following is an aggressive accounting practice?

LeBron's Bookstores has two divisions: media and books.The media division had another great year with net sales of $14 million,cost of goods sold of $8 million,operating expenses of $3 million,and income tax expense of $900,000.The book division did not do as well and was sold during the year.The loss from operations and sale of the book division was $400,000 before taxes and $280,000 after taxes.Assuming the sale of the book division is reported as a discontinued operation,at what amount did LeBron's Bookstores report net income?

Which of the following items would be reported at the very bottom of the income statement just before net income?

Excerpts from TPX Company's December 31,2018 and 2017,financial statements are presented below: TPX Company's 2018 asset turnover is (rounded to one decimal place) : $\begin{array} { | l | r | r | } \hline & \mathbf { 2 0 1 8 } & \mathbf { 2 0 1 7 } \\\hline \text { Accounts receivable } & \$ 80,000 & \$ 72,000 \\\hline \text { Inventory } & 84,000 & 70,000 \\\hline \text { Net sales } & 400,000 & 372,000 \\\hline \text { Cost of goods sold } & 254,000 & 216,000 \\\hline \text { Total assets } & 850,000 & 810,000 \\\hline \text { Total stockholders' equity } & 500,000 & 450,000 \\\hline \text { Net income } & 75,000 & 56,000 \\\hline\end{array}$

Vertical analysis expresses each item in a financial statement as a percentage of the same base amount.

LeBron's Bookstores has two divisions: media and books.The media division had another great year with net sales of $14 million,cost of goods sold of $8 million,operating expenses of $3 million,and income tax expense of $900,000.The book division did not do as well and was sold during the year.The loss from operations and sale of the book division was $400,000 before taxes and $280,000 after taxes.Assuming the sale of the book division is reported as a discontinued operation,at what amount did LeBron's Bookstores report income before tax?

Excerpts from Stealth Company's December 31,2018 and 2017,financial statements are presented below: Stealth Company's 2018 debt to equity ratio is (rounded to one decimal place) : $\begin{array} { | l | r | r | } \hline & \mathbf { 2 0 1 8 } & \mathbf { 2 0 1 7 } \\\hline \text { Accounts receivable } & \$ 40,000 & \$ 36,000 \\\hline \text { Inventory } & 28,000 & 36,000 \\\hline \text { Net sales } & 190,000 & 186,000 \\\hline \text { Cost of goods sold } & 114,000 & 108,000 \\\hline \text { Total assets } & 425,000 & 405,000 \\\hline \text { Total stockholders' equity } & 240,000 & 225,000 \\\hline \text { Net income } & 32,500 & 28,000 \\\hline\end{array}$