Financial Statement Analysis

1-Use the following financial data for Moose Printing Corporation to calculate
the cash flow from operations (CFO) using the indirect method.

 Net income $225

 Increase in accounts receivable 55

 Decrease in inventory 33

 Depreciation 65

 Decrease in accounts payable 25

 Increase in wages payable 15

 Decrease in deferred taxes 10

 Purchase of new equipment 65

 Dividends paid 75

A)
Increase in cash of $183.

B)
Increase in cash of $248.

C)
Increase in cash of $173.

D)
Decrease in cash of $108.

2-Use the following information to calculate cash flows from operations using
the indirect method.

 Net Income $12,000

 Depreciation Expense 1,000
 Loss on sale of machinery 500
 Increase in Accounts Receivable 2,000
 Decrease in Accounts Payable 1,500
 Increase in Income taxes payable 500
 Repayment of Bonds 3,000

A)
Increase in cash of $7,500.

B)
Increase in cash of $9,500.
C)
Decrease in cash of $8,500.

D)
Increase in cash of $10,500.

3-The following information is from the balance sheet of Silverstone Company:

 Net Income for 5/1/05 to 5/31/05: $8,000

Balance
Balance 5/01/05 Account
5/31/05
$2,000 Inventory $1,750 (250)
$1,200 Prepaid exp. $1,700 500
$800 Accum. Depr. $975 175
Accounts
$425 $625 200
payable
$650 Bonds payable $550 (100)

Using the indirect method, calculate the cash flow from operations for Silverstone
Company as of 5/31/05:

A) Increase in cash of $8,025.

B) Increase in cash of $8,125.
C) Increase in cash of $7,725.
D) The indirect method cannot be calculated from the information provided.

4-Darth Corporation’s most recent income statement shows net sales of $6,000, and
Darth’s marginal tax rate is 40 percent. The total expenses reported were $3,200, all of
which were paid in cash. In addition, depreciation expense was reported at $800. A
further examination of the most recent balance sheets reveals that accounts receivable
during that period increased by $1,000. The cash flow from operating activities reported
by Darth should be:

A) $1,200.
B) $2,000.
C) $2,200.
D) $1,000.
5-Using the following financial data for Nails, Etc., calculate the net change in cash
using the indirect method.

Net Income $15,000

Decrease in Accounts
200
receivable
Depreciation expense 120
Increase in inventory 75
Increase in deferred taxes 50
Purchase of equipment 2,000
Dividends paid 150

A)
Decrease in cash of $11,425.

B)
Increase in cash of $13,145.

C) Decrease in cash of
$13,045.

D)
Increase in cash of $12,745.

6-Using the indirect method, calculate net cash flow using the following
information:

 Net Income $43,000

 Increase in Accounts receivable 35,500
 Depreciation expense 350
 Increase in Prepaid expense 10,750
 Decrease in income taxes payable 75
 Sale of furniture 200
 Increase in common stock 25 emiten acciones y las venden por eso
ganan.

A)
Decrease in cash of $2,750.
B)
Increase in cash of $18,750.

C)
Increase in cash of $68,250.

D)
Decrease in cash of $2,600.

7-Using the following information, what is the firm's cash flow from operations?

Net income $100

Decrease in accounts receivable 30
Depreciation 25
Increase in inventory 17
Increase in accounts payable 10
Decrease in wages payable 5
Increase in deferred taxes 17
Profit from the sale of fixed assets 5
Dividends paid out 35
A) 165.
B) 175.
C) 182.
D) 155.

8-An examination of the cash receipts and payments of Xavier Corporation reveals the
following:

Cash paid to suppliers for purchase of merchandise $5,000

Cash received from customers 14,000

Cash paid for purchase of equipment 22,000

Dividends paid 2,000

Cash received from issuance of preferred stock 10,000

Interest received on short-term investments 1,000

Wages paid 4,000

Repayment of loan to the bank 5,000

Cash from sale of land 12,000

Xavier’s reported cash flow from operations will be:

A) -$6,000.
B) -$5,000.
C) $6,000.
D) $5,000.

9-A firm has net cash sales of $3,500,

Cost of goods sold (COGS) of $1,500, and
Cash taxes of $500

Earnings after taxes (EAT) of $1,000,

Depreciation expense of $500,

Inventory decreased by $100, and

Accounts receivable increased by $300

What is the firm's cash flow from operations?

A) $1,200.
B) $1,800.
C) $2,000.
D) $1,300.

10-Jodi Lein, small business consultant, is currently working with RJ

Landscaping, a sole proprietorship. She is trying to educate the owner on the
importance of monitoring cash flows. Operating information as of the end of the
most recent month appears below:

 Cash from sale of truck of $7,000.

  Cash salaries paid of $17,000.

 Cash from customers of $45,000.

 Depreciation expense of $5,500.

 Interest on bank line of credit of $1,000.

 Cash paid to suppliers of $22,000.

 Other cash expenses, including rent, of $6,300.

 No taxes due.

Using this information, Lein calculates the cash flow from operations for the month at:

A) $11,200.
B) -$300.
C) $4,200.
D) -$1,300.

11-Use the following data from Delta's common size financial statement to answer the
question:

Earnings after
= 18%
taxes
Equity = 40%
Current assets = 60%
rrent liabilities = 30%
Sales = $300
Total assets = $1,400

What is Delta's total-debt-to-equity ratio?

A) 1.0.
B) 2.0.
C) 1.5.
D) 2.5.

12-Johnson Corp. had the following financial results for the fiscal 2004 year:

Current ratio 2.00

Quick ratio 1.25

Current liabilities $100,000

Inventory turnover 12

Gross profit % 25

The only current assets are cash, accounts receivable, and inventory. The
balance in these accounts has remained constant throughout the year. Johnson’s
net sales for 2004 were:

A)
$3
00
,0
00
.
B) $900,000.
C) $1,000,000.
D) $1,200,000.

13-Aztec Corporation Common Sized Income Statement

Sales 100%
COGS 65
Operating expense 15
Interest expense 5
Income tax 5
Net income 10

Sales $900

Aztec Corporation Common Size Balance Sheet

Cash 5%
Accounts
20
receivable
Inventory 25
Fixed assets 50
Total assets 100%

Short-term debt 20%

Long-term debt 30
Common equity 50
Debt + equity 100%
Total assets $700

Based on the data given above, determine Aztec's quick ratio and total asset turnover.

Quick Ratio Total Asset Turnover

A)
1.25 1.29

B)
1.25 1.12

C)
2.50 1.12

D)
2.50 1.29

36-Based on the data given above, determine Aztec's times interest earned
ratio and gross profit margin.

Times Interest
Gross Profit Margin
Earned Ratio

A)
4.0X 35%

B)
5.0X 20%

C)
4.0X 20%

D)
5.0X 35%
14-Use the following data from Delta's common size financial statement to answer the
question:

Earnings after taxes = 18%

Equity = 40%
Current assets = 60%
Current liabilities = 30%
Sales = $300
Total assets = $1,400

What is Delta's after-tax return on equity?

A)
5.
0
%.
B) 9.6%.
C) 12.0%.
D) 18.0%.

15-Use the following data from Delta's common size financial statement to answer the
question:

Earnings after
= 18%
taxes
Equity = 40%
Current assets = 60%
Current liabilities = 30%
Sales = $300
Total assets = $1,400

What is Delta's after-tax profit margin?

A) 5.0%.
B) 9.6%.
C) 18.0%.
D) 12.0%.

16-Assume that Q-Tell Incorporated is in the communications industry, which

has an average receivables turnover ratio of 16 times. If the Q-Tell’s receivables
turnover is less than that of the industry, Q-Tell’s average receivables collection
period is most likely:

A)
12 days.

B)
16 days.

C)
25 days.

D)
20 days.

17-Use the following data to calculate return on equity (ROE).

 Earnings Before Interest and Tax / Sales = 25%

 Sales/Total Assets = 1.25
 Earnings Before Tax/Earnings before interest and tax = 0.80
 Total Assets / Equity = 1.5
 Earnings After Tax / Earnings Before Tax = 0.6

A) 37.5%.
B) 22.5%.
C) 62.5%.
D) 25%.

18-A company's financial statements show the following data (in millions):

 EBIT = $1.2
 Interest Expense = $0.2
 Sales = $20.0
 Assets = $15.0
 Equity = $7.5
 Tax Rate = 40%

The company's return on equity (ROE) is closest to:

A)
6.7%.

B)
8.3%.

C)
8.0%.

D)
16.7%.

19-Using the following data, find the return on equity (ROE).

Net Total Assets Sale Equit

Income s y

$2 $10 $10 $8

A)
25%.

B)
100%.

C)
20%.

D)
4%.

20-Given the following information about a firm what is its return on equity
(ROE)?

 An asset turnover of 1.2

 An after tax profit margin of 10%
 A financial leverage multiplier of 1.5

A)
0.
09
.
B) 0.18.
C) 0.12.
D) 0.10.

21-If a company has a net profit margin of 15 percent, an asset turnover ratio of 4.5 and
a ROE of 18 percent, what is the equity multiplier?
A)
0.267.

B)
0.523.

C)
2.667.

D)
3.135.

22-What is a company’s equity if their return on equity (ROE) is 12 percent, and their
net income is 10 million?

A)
1,200,000.

B)
12,000,000.

C)
120,000,000.

D)
83,333,333.

23-The equity multiplier for a firm with a total debt ratio equal to 45 percent is:

A)

1.
81
82
ti
m
es
.

B)
0.5495 times.

C)
0.6897 times.

D)
2.2222 times.
24-A firm’s financial statements reflect the following:

Net profit margin 15%

Sales $10,000,000

Interest payments $1,200,000

Avg. assets $15,000,000

Equity $11,000,000

Avg. working capital $800,000

Dividend payout rate 35%

Which of the following is the closest estimate of the firm’s sustainable growth rate?

A) 8%.
B) 10%.
C) 9%.
D) 11%.

25-Osnat Enterprise had the following financial data:

 Operating profit margin 10%

 Current ratio 2.5
 Total asset turnover 2.4
 Interest expense rate 6%
 Leverage multiplier 2.0
 Tax retention rate 0.80
What is Osnat’s return on equity?

A) 13.0%
B) 14.4%
C) 15.0%
D) 28.8%.

26-If the inventory turnover ratio is 7, what is the average number of days the inventory
is in stock?

A) 70 days.
B) 25 days.
C) 36 days.
D) 52 days.

27-Assume a firm with a debt to equity ratio of 0.50 and debt equal to $35
million makes a commitment to acquire raw materials with a present value of
$12 million over the next 3 years. For purposes of analysis the best estimate of the debt
to equity ratio should be:

A) 0.671.
B) 0.343.
C) 0.500.
D) 0.573.

28-The R&R Company has a dividend payout rate of 40 percent. If its return on equity
is 15 percent, what is R&R's sustainable growth rate?

A) 9%.
B) 6%.
C) 12%.
D) 15%.
29-Using a 365-day year, if a firm has net annual sales of $250,000 and
average receivables of $150,000, what is its average collection period?

A)
1.7 days.

B)
0.6 days.

C)
219.0 days.

D)
46.5 days.

30-An analyst has gathered the following information about a company:

 Cost of goods sold equals 65 percent of sales

 Inventory of $450,000
 Sales of $1 million

What is the value of this firm’s average inventory processing period using a 365-day
year?

A)
0.7 days.

B)
0.4 days.

C)
1.4 days.

D)
252.7 days.

31- The Budget Company had net income of $2 million for the period. There
were 1 million shares of weighted common stock outstanding for the entire
period. If there are 200,000 options outstanding with an exercise price of $30,
what is the basic earning per share and the diluted earnings per share for
Budget common stock if the average price per share over the period was $40?

Basic EPS __2______

Diluted EPS _1.905______

32-For the year ended 31 December 2007, Ange Company had net income of $
1,500,000. The company had an average of 400,000 shares of common stock
outstanding, 30,000 shares of convertible preferred, and no other potentially
dilutive securities. Each share of preferred pays a dividend of $10 per share,
and each is convertible into five shares of the company´s common stock.

Calculate the company´s basic and diluted EPS.

Basic EPS ____3_______

Diluted EPS ___2.73______

33-Tell Company reported net income of $ 750 000 for the year ended 31
December 2005. The company had an average of 500 000 shares of common
stock outstanding. In addition the company has only one potentially dilutive
security: $ 100 000 of 7% convertible bonds, convertible into a total of 10 000
shares. Assuming a tax rate of 30 percent, calculate Tell´s basic and diluted
EPS.

Basic EPS ____1.5______

Diluted EPS ____1.48_____

34- Assume the total sales price and cost of a property are $3,000,000 and $
2,400,000 respectively. The amount of cash received by the seller as a down
payment is $ 1,000,000, with the remainder of the sales price to be received
over a 20-year period.

How much profit will be recognized attributable to the down payment if

The installement sale method is used? ____200,000________

The cost recovery method is used? _____0_______

35- Justin Corp, entered into a construction project with a total contract price of
6 million and expected cost to complete will be $5,4, making remaining costs to
complete $1.8.

How much profit will be recognized

The completed contract method is used? ______0__________

The percentage of completion method is used? ____400,000_________