Interpreting Financial Statements
True False Questions
1, Current liabilities are defined as liabilities with a maturity of less than a year.
True False
2. A decline in the Net fixed assets account between year-end 2013 and year-end 2014 is a clear indication that fixed assets were sold during 2014.
True False
3. When reporting financial performance for tax purposes, U.S. companies prefer to use accelerated depreciation methods over the straight-line method.
True False
4. Accounting rules require U.S. companies to depreciate research and development (R&D)
expenditures using the straight-line method.
True Fae
5. You can construct a sources and uses statement for 2014 if you have a company's year-end balance sheets for 2014 and 2015.
6. A reduction in long-term debt is a use of cash,
True False
7. The accrual principle requires that revenue not be recognized until payment from a sale is received.
True False
Multiple Choice Questions
8. Which of the following statements concerning the cash flow-production cycle is true?
A. The profits reported in a given time period equal the cash flows generated.
B. A company's operations and finances are independent of each other.
C. Financial statements have nothing to do with reality.
D. The movement of cash to inventory, to accounts receivable, and back to cash is known as the firm's working capital cycle.
E. A profitable company will always have sufficient cash to meet its obligations.
9. Which of the following statements concerning a firm's cash flows and profits is false?
A. Managers must be at least as concerned with cash flows as with profits.
B. A company that sells merchandise at a profit will generate cash soon enough to replenish cash flows required for continued production.
C, The cash flows generated in a given time period can differ from the profits reported,
D. Profits are no assurance that cash flow will be sufficient to maintain solvency,
E. Due to required cash investments in current assets, fast-growing and profitable companies can literally "grow broke".
10. Which of the following is NOT a typical reason for differences between profits and cash flow?
A. Goodwill
B. Depreciation expense
C. Changes in accounts receivable
D. Accrual accounting practices
11. Which one of the following is the financial statement that shows a financial snapshot, taken at a point in time, of all the assets the company owns and all the claims against those assets?
A. income statement
B. creditor's statement
C. balance sheet
D. cash flow statement
E. sources and uses statement
12. A balance sheet reports the value of a firm's assets, liabilities, and equity:
A. over an annual period.
B. over any period of time.
C. at any point in time.
D. at the end of the year.
13. A company sells used equipment with a book value of $100,000 for $250,000 cash. How would this transaction affect the company's balance sheet?
A. Equity rises $250,000; net plant and equipment falls $250,000.
B. Cash rises $250,000; net plant and equipment falls $100,000; equity rises $150,000.
C. Cash rises $250,000; accounts receivable fails $100,000; goodwill rises $150,000.
D. Cash rises $250,000; net plant and equipment falls $250,000.
14. A company purchases a new $10 million building, financed half with cash and half with a bank loan. How would this transaction affect the company's balance sheet?
A. Net plant and equipment rises $10 million; cash falls $10 million; bank debt rises $5 million.
B. Net plant and equipment rises $5 million; cash falls $10 million; bank debt rises $5 million.
C. Net plant and equipment rises $5 million; cash falls $5 million; bank debt rises $5 million. ID. Net plant and equipment rises $10 million; cash falls $5 million; bank debt rises $5 million.
15. Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?
A, income statement
B. balance sheet
C. cash flow statement
ID. sources and uses statement E. market value statement
Foodtelc, Inc.
Selected financial inforination ($ millions)
|
|
2013 |
2014 |
|
Net sales
|
$296 |
$364 |
|
Cost of goods sold
|
168 |
273 |
|
Depreciation
|
51 |
65 |
|
Net income
|
32 |
45 |
|
Finished goods inventory
|
34 |
29 |
|
Accounts reeeivabl.e
|
47 |
87 |
|
Accounts payable
|
39 |
44 |
|
Net fixed assets
|
310 |
415 |
|
Year-end cash balance
|
$186 |
$123 |
16. Please refer to the financial information for Foodtek, Inc. above. During 2014, how much cash (in $ millions) did Foodtek collect from sales?
A. 364
B. 277
C. 404
D. 324
E. 451
F. None of the above.
17. Please refer to the financial information for Foodtek. Inc. above. During 2014, what was the cost of merchandise (in $ millions) produced by Foodtek?
A. 223
B. 194
C. 252
D. 228
E. 218
F. None of the above.
18. Please refer to the financial information for Foodtek, Inc. above. Assuming the company neither sold nor salvaged any assets during the year, what were Foodtek's capital expenditures (in $ millions) during 2014?
A. 415
B. 105
C. 310
D. 40
E. 170
F. None of the above.
19. Please refer to the financial information for Foodtek, Inc. above. Assuming that there were no fnancing cash flows during 2014 and basing your answer solely on the information provided, what were Foodtek's cash flows from operations (in $ millions) for 2014?
A. 45
B. 110
C. 70
D. 80
E. 35
F. None of the above.
20. Suppose an acquiring firm pays $100 million for a target firm and the targets assets have a book value of $70 million and an estimated replacement value of $80 million. What amount would be allocated to the acquiring firm's goodwill account?
A. $0 million
B. $20 million
C. $30 million
D. $70 million
E. $80 million
F. None of the above.
Part - 2:
Evaluating Financial Performance
1. An inventory turnover ratio of 10 means that, on average, items are held in inventory for 10 days.
True False
2. All else equal, an increase in a company's asset turnover will decrease its ROE.
True False
3. A company's return on assets will always equal or exceed its profit margin,
True False
4. A company's price-to-earnings ratio is always equal to one minus its earnings yield.
True False
5. Return on assets can be calculated as profit margin times asset turnover.
True False
6. All else equal, a firm would prefer to have a higher gross margin.
True False
7. The times-interest-earned ratio always equals or exceeds the times-burden-covered ratio.
True False
Multiple Choice Questions
8. The most popular yardstick of financial performance among investors and senior managers is the:
A. profit margin.
B. return on equity.
C. return on assets.
D. times-burden-covered ratio.
E. earnings yield.
F. None of the above.
9. Which of these ratios, or levers of performance, are the determinants of ROE? 1. profit margin
II. financial leverage
Ill. times interest earned
IV. asset turnover
A. 1 and IV only
B. II and IV only
C. I, II, and IV only
D. I, II, and III only
E. I, III, and IV only
F. I, II, 111, and IV
10. Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as ratios.
A. asset turnover and control
B. financial leverage
C. coverage
D. profitability
E. None of the above.
11. Which of the following ratios are measures of a firm's liquidity?
I. fixed asset turnover ratio
II. current ratio
III. debt-equity ratio
IV. acid test
A. I and III only
B. lI and IV only
C. III and IV only
D. I, II, and III only
E. I, III, and IV only
12. Ptarmigan Travelers had sales of $420,000 in 2013 and $480,000 in 2014. The firm's current asset accounts remained constant. Given this information, which one of the following statements must be true?
A. The total asset turnover rate increased.
B. The days' sales in receivables increased.
C. The inventory turnover rate increased.
D. The fixed asset turnover decreased.
E. The collection period decreased.
Link Inc.
Selected financial data ($ thousands)
|
|
2013 |
2014
|
|
Income statement and related kerns
|
|
|
|
Sales
|
$160,835 |
$274.219
|
|
Cost of goods sold
|
141.829
|
209.628
|
|
Net income
|
(91,432) |
(257.981)
|
|
Cash flow from operations
|
(35_831) |
(12.538)
|
|
Balance sheet iterm
|
|
|
|
Cash
|
$236.307
|
$164.952
|
|
Marketable securities
|
209.670
|
21638 |
|
Accounts receivable
|
12.645
|
21.655
|
|
Inventory
|
3.971
|
40.556
|
|
Total current assets
|
462.593
|
249,801 |
|
Accounts payable
|
17,735 |
13.962
|
|
Accrued liabilities
|
27.184
|
76.596
|
|
Total current liabilities
|
44.919
|
90.558
|
13. Please refer to the financial data for Link, Inc. above. The current ratio for Link at the end of 2014 is:
A. 10.21
B. 2.31
C. 2.76
D. 10.30
E. None of the above.
14. Please refer to the financial data for Link, Inc. above. Which of the following statements best describes how the Link's short-term liquidity changed from 2013 to 2014?
A. Link's short-term liquidity has improved modestly_
B. Link's short-term liquidity has deteriorated very little, but from a low initial base.
C. Link's short-term liquidity has improved considerably, but from a low initial base.
D. Link's short-term liquidity has deteriorated considerably, but from a high initial base.
E. None of the above.
15. Please refer to the financial data for Link, Inc. above. Assume a 365-day year for your calculations. Link's collection period in days, based on sales, at the end of 2014 is:
A 24.3
B. 219.6
C. 35.7 L. 28,8 E. None of the above.
16. Please refer to the financial data for Link, Inc. above. Assume a 365-day year for your calculations, Link's inventory turnover, based on cost of goods sold, at the end of 2014 is:
A. 5.2
B. 24.3
C. 26.8
D. 35.7
E. None of the above.
17. Please refer to the financial data for Link, Inc. above. Assume a 365-day year for your calculations. Link's payables period in days, based on cost of goods sold, at the end of 2014 is:
A. 5.2
B. 24.3
C. 28.8
D. 35.7
E. None of the above.
18. Please refer to the financial data for Link, inc. above. Assume a 365-day year for your calculations. Link's days' sales in cash at the end of 2014 is:
A.24.3
B. 28.8
C.219.6
D. 249.7
E. None of the above.
|
Oscar's Incredible Eatery a thousands)
Income Statement for the year endinc, Dec. 31, 2014
|
|
|
Net sales
|
17.300
|
|
Cost of goods sold
|
10,600
|
|
Depreciation
|
3,250
|
|
Earning before interest and taxes
|
3,450
|
|
Interest expense
|
680
|
|
Earnings before tax
|
2.770
|
|
Tax
|
940
|
|
Earnings after tax
|
1,830
|
|
Dividends
|
450
|
Balance Sheet as of Dec. 31, 2014
|
Cash
|
350 |
Accounts payable
|
L920 |
|
Accounts receivable
|
940 |
Long-term debt
|
3,500 |
|
Inventry
|
2.360 |
Common stock
|
7.500
|
| Total current assets |
3.650 |
Retained earnings
|
1.580
|
|
Net fixed assets
|
10,850 |
|
|
|
Total assets
|
14,500 |
Total liab. & equity
|
14.500
|
19. Please refer to Oscar's financial statements above. What was Oscar's increase in retained earnings during 2014?
A. $450
B. $1,380
C. $1,830
D. $2,280
E. None of the above.
20. Please refer to Oscar's financial statements above. Sales are projected to increase by 3 percent next year. The profit margin and the dividend payout ratio are projected to remain constant. What is the projected addition to retained earnings for next year?
A. $1,309.19
B. $1,421.40
C. $1,884.90
D. $2,667.78
E. $3,001.40
F. None of the above.
21. Please refer to Oscar's financial statements above. All of Oscar's costs and current asset accounts vary directly with sales. Sales are projected to increase by 10 percent. What is the pro forma accounts receivable balance for next year?
A. $949
B. $1,034
C. $1,113
D. $1,730
E. $2,670
F. None of the above.
22. Please refer to Oscar's financial statements above. Assume a constant profit margin and dividend
payout ratio, and further assume all of Oscar's assets and current liabilities vary directly with sales. Assume long-term debt and common stock remain unchanged. Sales are projected to increase by 10 percent. What is Oscar's external financing need for next year?
A, -$410
B. -$260
C. $235
D. $1,320
E. $7,240
F. None of the above.
23. Please refer to the selected financial information for Boss Stores above. What is the retention ratio for 2013?
A. 0.32
B. 0.68
C. 0.97
D. 1.00
E. None of the above.
24. Please refer to the selected financial information for Boss Stores above. What is the actual sales growth rate for 2013?
A. - 17.6%
B. - 7.9%
C. 8.51%
D. 21,4%
E. None of the above.
25. Please refer to the selected financial information for Boss Stores above. What is the sustainable growth rate for 2013?
A. - 17.6%
B. - 7.9%
C. 9.97%
D. 10.27%
E. 12.23%
F. 21.40%
26. Please refer to the selected financial information for Boss Stores above. What is the difference between Boss's sustainable growth rate and its actual growth rate for 2014?
A. - 11.40%
B. - 7.09%
C. - 3.04% 0. 5.47% E. 13.98%
F. 21.40%