TEST YOUR KNOWLEDGE

CHAPTER 3: Working with financial statements

3.1 Cash Flow and Financial Statements

1. What is a source of cash? Give three examples.

2. What is a use, or application of cash? Give three examples.

3.2 Standardized Financial Statements

3. Why is it necessary often to standardize financial statements?

4. Name two types of standardized statements and describe how each is formed.
 5. Standardize the following B/S and fill in the table.
2008 2009 2008 2009 Change
Cash $210 $215
A/R 355 310
Inventory 507 328
FA 6,085 6,527
Total Assets 7,157 7,380 100% 100% 0
A/P 207 298
N/P 1,715 1,427
LTD 1,987 2,308
C/S 1,000 1,000
Retained earnings 2,248 2,347
TL&E 7,157 7,380 100% 100% 0

6. Standardize the following I/S and fill in the table.

Sales (Revenues) $2,311 100%
COGS 1,344
Depreciation 276
EBIT $691
Interest 141
Taxable income $550
Taxes (34%) 187
NI $363
Dividends $121
Addition to retained earnings 242

3.3 Ratio Analysis

7. What are the five groups of ratios? Give examples for each.
 8. Selected financial data in Saudi Riyal for Hail cement and Najran cement are listed
below:

Hail cement Najran cement

Current Assets 115,524,000 88,265,000
Fixed assets 1,122,148,000 2,493,686,000
Total assets 1,334,287,000 2,913,019,000
Current liabilities 135,959,000 483,232,000
Long-term debt 236,583,000 609,247,000
Equity 961,745,000 1,820,540,000
Total liabilities 372,542,000 1,092,479,000
Net sales 159,018,000 631,639,000
Net income 50,467,000 198,142,000
Share price SAR23.46 SAR 29.08
Outstanding shares 97,900,000 170,000,000

Compare and contrast between the two corporations using the five ratio categories.
 9. Selected financial data in thousands of dollars for the Hunter Corporation are listed
below:

2015 2014
Current assets 55 400
Fixed assets 700 600
Total assets 1,200 1,000
Current liabilities 300 200
Long-term debt 200 200
Common equity 700 600
Total liability and equity 1,200 1,000
Net sales 1,500 1,200
Net income 110 100
Shares outstanding 200,000 200,000
Share price $20 $30

Analyze the company using the five ratio categories.

3.4 Using Financial Statement Information

10. What are some uses for financial statement analysis?

11. What are some problems that can come up with financial statement analysis?

12. What is time trend analysis? What is peer group analysis? What is cross-sectional
analysis?