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Exam 14: Financial Statement Analysis

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Question 111

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Match each ratio that follows to its use (items a-h) . Items may be used more than once. -ratio of liabilities to stockholders' equity

A) assess the profitability of the assets
B) assess how effectively assets are used
C) indicate the ability to pay current liabilities
D) indicate how much of the company is financed by debt and equity
E) indicate instant debt-paying ability
F) assess the profitability of the investment by common stockholders
G) indicate future earnings prospects
H) indicate the extent to which earnings are being distributed to common stockholders

I) C) and H)
J) E) and F)

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Question 112

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The price-earnings ratio on common stock is calculated as

A) market price per share of common stock, divided by earnings per share on common stock.
B) earnings per share of common stock, divided by market price per share of common stock.
C) market price per share of common stock, divided by dividends per share of common stock.
D) dividends per share of common stock, divided by earnings per share on common stock.

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

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Question 113

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$\text { Harding Company }$ $\begin{array}{lr}\text { Accounts payable } & 40,000 \\\text { Accounts receivable } & 65,000 \\\text { Accrued liabilities } & 7,000 \\\text { Cash } & 30,000 \\\text { Intangible assets } & 40,000 \\\text { Inventory } & 72,000 \\\text { Long-term investments } & 110,000 \\\text { Long-term liabilities } & 75,000 \\\text { Marketable securities } & 36,000 \\\text { Notes payable (short-term) } & 30,000 \\\text { Property, plant, and equipment } & 625,000 \\\text { Prepaid expenses } & 2,000\end{array}$ -Based on the data for Harding Company, what is the amount of working capital?

Short-term creditors are typically most interested in analyzing a company's

The ability of a business to pay its debts as they come due and to earn a reasonable net income is

The following information has been condensed from the December 31 balance sheets of Gabriel Co.: $\begin{array}{l}&\text { Year } 2&\text { Year } 1\\\text { Assets: }\\\text { Current assets } & \$ 825,500 & \$ 674,300 \\\text { Fixed assets (net) } & 1,473,600 & 1,275,300\\\text { Total assets } & \$ 2,299,100 &\$ 1,949,600\\\\\text { Liabilities: }\\\text { Current liabilities } & \$ 313,500 & \$ 309,600 \\\text { Long-term liabilities } & 703,000 & 545,000 \\\text { Total liabilities } & \$ 1,016,500 & \$ 854,600 \\\text { Stockhol ders' equity } & \$ 1,282,600 & \$ 1,095 ,000\\\text { Total liabilities and }\\\text { stockholders' equity }&\$2,299,100&\$1,949,600\end{array}$ ​ (a) Determine the ratio of fixed assets to long-term liabilities for each year. (b) Determine the ratio of liabilities to stockholders' equity for each year. (c) Comment on the year-to-year changes for both ratios. Round your answers to two decimal places.

Rho, Sigma, and Tau Companies have the following data for the current year: ​ $\begin{array} { | l | c | c | c | } \hline & \text { Rho Company } & \text { Sigma Company } & \text { Tau Company } \\\hline \text { Frice-earnings ratio } & 23.7 & 16.9 & 30.1 \\\hline\end{array}$ ​ Which company would be expected to have the best potential for future common stock price appreciation?

Income statement information for Lucy Company is provided below: $\begin{array} { l l } \text { Sales } & \$ 175,000 \\\text { Cost of goods sold } & 105,000 \\\text { Gross profit } & \$ 70,000\end{array}$ ​ Prepare a vertical analysis of the income statement for Lucy Company.