Please help with questions. Thanks A financial analyst is comparing two companie
ID: 2478020 • Letter: P
Question
Please help with questions. Thanks
A financial analyst is comparing two companies using a top-down approach. Which of the following would cause problems in the evaluation process?
a. Inflation has been low for several years.
b. The companies operate in different industries.
c. One company has been in business significantly longer than the other company.
d. One company's fiscal year-end is October 31, while the other company's fiscal year-end is December 31.
In a common size income statement to be used in vertical analysis, the 100% amount is:
Rainsoft Company
Selected data from the financial statements are provided below:
Refer to Rainsoft Company. Assume that competitors in the industry have an average inventory turnover ratio of 20.8 times in 2015. Rainsoft's inventory turnover ratio for 2015 indicates that the company
Rent-a-Center
Selected data from the financial statements are provided below:
Refer to Rent-a-Center. Which of the following is true regarding the debt management ratios between 2014 and 2015?
Time series (or trend) analysis is analysis in which
The gross profit percentage decreased from 36.5% in 2014 to 24.8% in 2015. What is the trend in this change?
Horizontal analysis is analysis in which
Most companies
Annual reports are filed with the SEC on
Turnover ratios differ from the current and quick ratios in that they
Which of the following is a measure of liquidity?
The working capital of a company is equal to
Which of the following is considered a measure of short-term liquidity?
A company issued additional shares of stock. Which of the following is true with regard to the effect of the stock issuance transaction on the company's ratio computations?
A company reported the following amounts in its financial statements:
From 2014 to 2015, the company's efficiency in managing inventory was:
Rainsoft Company
Selected data from the financial statements are provided below:
Refer to Rainsoft Company. Assume that competitors in the industry have an average inventory turnover ratio of 20.8 times in 2015. Rainsoft's inventory turnover ratio for 2015 indicates that the company
a. Is pricing its products too low. b. Has too little inventory on hand at the end of 2015. c. May have obsolete inventory or problems with sales. d. Is selling its inventory much more quickly than the industry average.Rent-a-Center
Selected data from the financial statements are provided below:
Refer to Rent-a-Center. Which of the following is true regarding the debt management ratios between 2014 and 2015?
a. The debt-to-equity and total debt-to-total assets ratios both decreased. b. The debt-to-equity and debt-to-total assets ratios both increased. c. The debt-to-equity and long-term debt-to-equity ratios both decreased. d. The debt-to-equity ratio decreased and the debt-to-total assets ratios increased.Time series (or trend) analysis is analysis in which
a. Ratio increases and decreases are presented for the past two accounting periods. b. A statistic is calculated for the relationship between two items on a single financial statement or for two items on different financial statements. c. All items are presented as a percentage of one selected item on a financial statement. d. Dollar changes and percentage changes in a company's financial statement lines are compared over several yearsThe gross profit percentage decreased from 36.5% in 2014 to 24.8% in 2015. What is the trend in this change?
a. This increase represents an upward, or favorable, trend. b. The trend cannot be determined unless the dollar amount of the change is also know. c. The answer depends upon whether net sales increased or decreased during the period. d. This increase represents a downward, or negative, trend.Horizontal analysis is analysis in which
a. Financial statement lines are expressed as a percent of the base (earliest) year. b. All items are presented as a percentage of one selected item on the financial statement. c. Ratio increases and decreases are presented for the past two accounting periods. d. A statistic is calculated for the relationship between two items on a single financial statement or for two items on different financial statements.Most companies
a. Are not concerned with the debt management ratios when cash flows are good. b. Try to maintain protection from creditors by keeping only a small amount of cash available. c. Strive for an appropriate balance between debt and equity financing. d. Agree that a current ratio of 0.75 is sufficient for business operations.Annual reports are filed with the SEC on
a. Form 8-K. b. Form 10-K c. The MD&A section. d. Form 10-Q.Turnover ratios differ from the current and quick ratios in that they
a. Measure the profitability of a company instead of its liquidity. b. Are based on net sales instead of cash. c. Are based on a point in time rather than a period of time. d. Measure the efficiency with which a company uses its assets.Which of the following is a measure of liquidity?
a. Operating cash flows ratio b. Earnings per share c. Return on common equity d. Accounts receivable turnover ratioThe working capital of a company is equal to
a. Long-term assets less current assets b. Stockholders' equity c. Total assets less current assets d. Current assets less current liabilitiesWhich of the following is considered a measure of short-term liquidity?
a. Dividend yield ratio b. Return on assets ratio c. Quick ratio d. Gross profit percentageA company issued additional shares of stock. Which of the following is true with regard to the effect of the stock issuance transaction on the company's ratio computations?
a. The debt-to-equity ratio increased. b. Earnings per share decreased. c. The asset turnover ratio decreased. d. Return on equity remained unchanged.A company reported the following amounts in its financial statements:
2015 2014 Average inventory $100,000 $60,000 Cost of goods sold 2,000,000 1,500,000
From 2014 to 2015, the company's efficiency in managing inventory was:
Explanation / Answer
A. The fact that one company has been in business significantly longer than the other Company, would cause problems in the evaluation process.
B. In a common size income statement to be used in vertical analysis, the 100% amount is Net Sales.
C. Inventory Turnover Ratio for 2015 = Cost of Goods Sold / Average Inventory
= 336,000 / ((166,000 + 44,000) / 2) = 336,000 / 105,000 = 3.2 : 1
Rainsoft's inventory turnover ratio for 2015 indicates that the company is selling its inventory much more quickly than the industry average.
The debt-to-equity and debt-to-total assets ratios both increased for Rent-A-Centre. (Debt to equity gone up from 0.75 to 2.25 and total debt to total assets gone up from 0.43 to 0.69).
Time series (or trend) analysis is analysis in which dollar changes and percentage changes in a company's financial statement lines are compared over several years.
The answer depends upon whether net sales increased or decreased during the period, is what the trend in the change from GP of 36.5% to 2014 to 24.8% in 2015 indicates.
Horizontal analysis is analysis in which ratio increases and decreases are presented for the past two accounting periods.
Most companies strive for an appropriate balance between debt and equity financing.
Annual Reports are filed with the SEC on Form 10-K.
Turnover ratios differ from the current and quick ratios in that they measure the profitability of a company instead of its liquidity.
Accounts receivable turnover ratio is a measure of liquidity.
The working capital of a company is equal to Current assets less current liabilities.
Quick ratio is considered as a measure of short-term liquidity,
Earnings per share decreased, if the Company has issued additional shares of common stock.
From 2014 to 2015, the company's efficiency in managing inventory was Improving, because the inventory turnover ratio is decreasing.