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Exam 13: Financial Statement Analysis

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Question 41

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Dennis Company reported net income of $50,000 on sales of $300,000.The company has average total assets of $500,000 and average total liabilities of $100,000.What is the company's return on equity ratio?

A) 10.0%
B) 16.7%
C) 12.5%
D) 50.0%

E) A) and B)
F) B) and D)

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Question 42

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Which of the following statements regarding net margin is not true?

A) Net margin refers to the percentage of each sales dollar remaining after all expenses are subtracted.
B) Net margin may be calculated in several ways.
C) The amount of net margin is affected by a company's choices of accounting principles.
D) The smaller the net margin the better.

E) B) and D)
F) A) and D)

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Question 43

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

Darden Company has cash of $40,000,accounts receivable of $60,000,inventory of $32,000,and equipment of $100,000.Assuming current liabilities of $48,000,this company's working capital is:

Which ratio compares the earnings per share of a company to the market price for a share of the company's stock?

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

The accounts receivable turnover ratio can be used to asses a firm's solvency.

Benson Company received cash of $1,000,000 from issuing common stock at par value.As a result of this transaction,the company's debt-to-equity ratio will:

The accounting profession assumes that financial statement users have an expert knowledge of business.

Starwood Corporation has current assets of $200,000,total current liabilities of $750,000 net credit sales of $1,300,000,beginning accounts receivable of $65,000 and ending accounts receivable of $69,000.What is Starwood's accounts receivable turnover?

While horizontal analysis examines one item over many time periods,vertical analysis examines many items in the same interval of time.

Which of the following statements regarding the information disclosed in financial statements is not true?

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

Solvency ratios are used to analyze the long-term debt-paying ability and the composition of the financing structure of the firm.

The Poole Company reported the following income for Year 2: What is the company's net margin? (Rounded to the nearest whole percent. )

You are considering an investment in Frontier Airlines stock and wish to assess the firm's earnings performance.All of the following ratios can be used to assess profitability except:

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 balance sheet information was provided by Western Company: Assuming Year 2 net credit sales totaled $270,000,what was the company's average days to collect receivables? (Use 365 days in a year.Do not round your intermediate calculations. )

The accounting concept or principle that is perhaps the greatest single culprit in distorting the results of financial statement analysis is the:

Martin Company reported net income of $15,000 on gross sales of $80,000.The company has average total assets of $135,000,of which $102,000 is property,plant and equipment.What is the company's return on investment? (Rounded to the nearest decimal point. )