Deck 5: The Analysis of Financial Statements

Question 1

The------shows the relationship between cash dividends and market price.

Answer 1

dividend yield

Question 2

Articles from current business periodicals should not be used in financial statement analysis as journalists are often biased.

Answer 2

False

Question 3

The------ratio is a broader measure of coverage capability than the times interest earned ratio because it includes the fixed payments associated with leasing.

Answer 3

fixed charge coverage

Question 4

Form 10-Ks and Form 10-Qs can be located through the Dun & Bradstreet Information services.

Question 5

________ratios measure the extent of a firm's financing with debt relative to equity and its ability to cover interest and other fixed charges.

Question 6

The objectives of a financial statement analysis will vary depending on the perspective of the financial statement user.

Question 7

The------helps the analyst see how the firm's decisions and activities over the course of an accounting period interact to produce an overall return to the firm's shareholders, the return on equity.

Question 8

________ratios measure the liquidity of specific assets and the efficiency of managing assets.

Question 9

The debt ratio considers the proportion of all stockholders' equity that is financed with debt.

Question 10

Three ratios that help the financial analyst assess short-term solvency are the current ratio, the quick ratio and the cash flow liquidity ratio.

Question 11

________ratios measure returns to stockholders and the value the marketplace puts on a company's stock.

Question 12

Financial ratios are powerful tools due to the fact that standard definitions exist and there is a set standard that should be met for each ratio.

Question 13

________ratios measure a firm's ability to meet cash needs as they arise.

Question 14

A------statement contains useful information about the board of directors and executive compensation, option grants, audit-related matters, related party transactions and proposals to be voted on by shareholders.

Question 15

Supplementary schedules, such as data related to the breakdown of key financial figures by operating segment, are helpful to financial statement analysts.

Question 16

The accounts receivable turnover, inventory turnover and accounts payable turnover ratios are mathematical complements to the ratios that make up the cash conversion cycle.

Question 17

The------ cycle or------cycle is the normal operating cycle of a firm that consists of buying or manufacturing inventory, selling inventory and paying accounts payable and collecting accounts receivable.

Question 18

________financial statements are projections of financial statements based on a set of assumptions regarding future revenues, expenses, level of investments in assets, financing methods and costs, and working capital management.

Question 19

A creditor is ultimately concerned with the ability of a firm to generate profits.

Question 20

Tools used in a financial statement analysis should generally include common-size financial statements, key financial ratios, trend analysis, structural analysis, and comparison with industry competitors.

Question 21

Use the following selected financial information for Wilcox Corporation to answer questions . Wilcox Corporation
Income Statement
For the Year Ended December 31,2015
$\begin{array}{lr}\text { Net sales } & \$ 2,870 \\\text { Cost of goods sold } & 1,985\\\text { Gross profit } & \$ \overline{885} \\\text { Operating expenses } & 620\\\text { Operating profit } & \$ 265 \\\text { Interest expense } & 40\\\text { Earnings before taxes }&\$225\\\text { Income tax expense }&80\\\text { Net profit }&\$145\end{array}$ Wilcox Corporation
Balance Sheet
December 31, 2015
$\begin{array}{lclr}\text { Assets }&&\text { Liabilities and stockholders' equity }\\\hline\text { Current assets }&&\text { Current liabilities }\\\text { Cash } & \$ 25 & \text { Accounts payable } & \$ 85 \\\text { Short-term investments } & 15 & \text { Accrued liabilities } & 45 \\\text { Accounts receivable } & 70 & \text { Total current liabilities } & 130 \\\text { Inventory } & 150 & \text { Long-term debt } & 240\\\text { Total current assets }&260&\text { Total liabilities }&370\\\\\text { Long-term assets }&&\text { Stockholders' equity }\\\text { Net PPE } & 390 & \text { Common stock and PIC } & 80 \\\text { Goodwill } & 210 & \text { Retained earnings } & 410\\&&\text { Total stockholders' equity }&490\\\text { Total assets }&\$860&\text { Total liabilities and equity }&\$860\end{array}$ WilcoxCorporation
Statement of Cash Flow Information
For the Year Ended December 31, 2015

$\begin{array}{ll}\text { Cash from operating activities }&\$150\\\text { Investing activities: }\\\text { Capital expenditures } & \$ 60 \\\text { Acquisitions } & \$ 10\\\text { Financing activities: }\\\text { Proceeds from long-term borrowing } & \$ 50 \\\text { Payments on long-term borrowing } & \$ 25 \\\text { Payments of cash dividends } & \$ 20\\\text { Cash paid for interest } & \$ 10 \\\text { Cash paid for income taxes } & \$ 75\end{array}$

-Wilcox's cash flow adequacy ratio is:

A)1.43
B)2.15
C)1.90
D)0.54

Question 22

Use the following selected financial information for Wilcox Corporation to answer questions . Wilcox Corporation
Income Statement
For the Year Ended December 31,2015
$\begin{array}{lr}\text { Net sales } & \$ 2,870 \\\text { Cost of goods sold } & 1,985\\\text { Gross profit } & \$ \overline{885} \\\text { Operating expenses } & 620\\\text { Operating profit } & \$ 265 \\\text { Interest expense } & 40\\\text { Earnings before taxes }&\$225\\\text { Income tax expense }&80\\\text { Net profit }&\$145\end{array}$ Wilcox Corporation
Balance Sheet
December 31, 2015
$\begin{array}{lclr}\text { Assets }&&\text { Liabilities and stockholders' equity }\\\hline\text { Current assets }&&\text { Current liabilities }\\\text { Cash } & \$ 25 & \text { Accounts payable } & \$ 85 \\\text { Short-term investments } & 15 & \text { Accrued liabilities } & 45 \\\text { Accounts receivable } & 70 & \text { Total current liabilities } & 130 \\\text { Inventory } & 150 & \text { Long-term debt } & 240\\\text { Total current assets }&260&\text { Total liabilities }&370\\\\\text { Long-term assets }&&\text { Stockholders' equity }\\\text { Net PPE } & 390 & \text { Common stock and PIC } & 80 \\\text { Goodwill } & 210 & \text { Retained earnings } & 410\\&&\text { Total stockholders' equity }&490\\\text { Total assets }&\$860&\text { Total liabilities and equity }&\$860\end{array}$ WilcoxCorporation
Statement of Cash Flow Information
For the Year Ended December 31, 2015

$\begin{array}{ll}\text { Cash from operating activities }&\$150\\\text { Investing activities: }\\\text { Capital expenditures } & \$ 60 \\\text { Acquisitions } & \$ 10\\\text { Financing activities: }\\\text { Proceeds from long-term borrowing } & \$ 50 \\\text { Payments on long-term borrowing } & \$ 25 \\\text { Payments of cash dividends } & \$ 20\\\text { Cash paid for interest } & \$ 10 \\\text { Cash paid for income taxes } & \$ 75\end{array}$

-Wilcox's return on equity is:

A)20.62%
B)25.50%
C)29.59%
D)28.49%

Question 23

Use the following selected financial information for Wilcox Corporation to answer questions . Wilcox Corporation
Income Statement
For the Year Ended December 31,2015
$\begin{array}{lr}\text { Net sales } & \$ 2,870 \\\text { Cost of goods sold } & 1,985\\\text { Gross profit } & \$ \overline{885} \\\text { Operating expenses } & 620\\\text { Operating profit } & \$ 265 \\\text { Interest expense } & 40\\\text { Earnings before taxes }&\$225\\\text { Income tax expense }&80\\\text { Net profit }&\$145\end{array}$ Wilcox Corporation
Balance Sheet
December 31, 2015
$\begin{array}{lclr}\text { Assets }&&\text { Liabilities and stockholders' equity }\\\hline\text { Current assets }&&\text { Current liabilities }\\\text { Cash } & \$ 25 & \text { Accounts payable } & \$ 85 \\\text { Short-term investments } & 15 & \text { Accrued liabilities } & 45 \\\text { Accounts receivable } & 70 & \text { Total current liabilities } & 130 \\\text { Inventory } & 150 & \text { Long-term debt } & 240\\\text { Total current assets }&260&\text { Total liabilities }&370\\\\\text { Long-term assets }&&\text { Stockholders' equity }\\\text { Net PPE } & 390 & \text { Common stock and PIC } & 80 \\\text { Goodwill } & 210 & \text { Retained earnings } & 410\\&&\text { Total stockholders' equity }&490\\\text { Total assets }&\$860&\text { Total liabilities and equity }&\$860\end{array}$ WilcoxCorporation
Statement of Cash Flow Information
For the Year Ended December 31, 2015

$\begin{array}{ll}\text { Cash from operating activities }&\$150\\\text { Investing activities: }\\\text { Capital expenditures } & \$ 60 \\\text { Acquisitions } & \$ 10\\\text { Financing activities: }\\\text { Proceeds from long-term borrowing } & \$ 50 \\\text { Payments on long-term borrowing } & \$ 25 \\\text { Payments of cash dividends } & \$ 20\\\text { Cash paid for interest } & \$ 10 \\\text { Cash paid for income taxes } & \$ 75\end{array}$

-Wilcox's times interest earned ratio is:

A)1.50
B)4.50
C)6.63
D)8.60

Question 24

Use the following selected financial information for Wilcox Corporation to answer questions . Wilcox Corporation
Income Statement
For the Year Ended December 31,2015
$\begin{array}{lr}\text { Net sales } & \$ 2,870 \\\text { Cost of goods sold } & 1,985\\\text { Gross profit } & \$ \overline{885} \\\text { Operating expenses } & 620\\\text { Operating profit } & \$ 265 \\\text { Interest expense } & 40\\\text { Earnings before taxes }&\$225\\\text { Income tax expense }&80\\\text { Net profit }&\$145\end{array}$ Wilcox Corporation
Balance Sheet
December 31, 2015
$\begin{array}{lclr}\text { Assets }&&\text { Liabilities and stockholders' equity }\\\hline\text { Current assets }&&\text { Current liabilities }\\\text { Cash } & \$ 25 & \text { Accounts payable } & \$ 85 \\\text { Short-term investments } & 15 & \text { Accrued liabilities } & 45 \\\text { Accounts receivable } & 70 & \text { Total current liabilities } & 130 \\\text { Inventory } & 150 & \text { Long-term debt } & 240\\\text { Total current assets }&260&\text { Total liabilities }&370\\\\\text { Long-term assets }&&\text { Stockholders' equity }\\\text { Net PPE } & 390 & \text { Common stock and PIC } & 80 \\\text { Goodwill } & 210 & \text { Retained earnings } & 410\\&&\text { Total stockholders' equity }&490\\\text { Total assets }&\$860&\text { Total liabilities and equity }&\$860\end{array}$ WilcoxCorporation
Statement of Cash Flow Information
For the Year Ended December 31, 2015

$\begin{array}{ll}\text { Cash from operating activities }&\$150\\\text { Investing activities: }\\\text { Capital expenditures } & \$ 60 \\\text { Acquisitions } & \$ 10\\\text { Financing activities: }\\\text { Proceeds from long-term borrowing } & \$ 50 \\\text { Payments on long-term borrowing } & \$ 25 \\\text { Payments of cash dividends } & \$ 20\\\text { Cash paid for interest } & \$ 10 \\\text { Cash paid for income taxes } & \$ 75\end{array}$

-Wilcox's total asset turnover ratio is:

A)3.98
B)4.22
C)5.91
D)3.34

Question 25

Use the following selected financial information for Wilcox Corporation to answer questions . Wilcox Corporation
Income Statement
For the Year Ended December 31,2015
$\begin{array}{lr}\text { Net sales } & \$ 2,870 \\\text { Cost of goods sold } & 1,985\\\text { Gross profit } & \$ \overline{885} \\\text { Operating expenses } & 620\\\text { Operating profit } & \$ 265 \\\text { Interest expense } & 40\\\text { Earnings before taxes }&\$225\\\text { Income tax expense }&80\\\text { Net profit }&\$145\end{array}$ Wilcox Corporation
Balance Sheet
December 31, 2015
$\begin{array}{lclr}\text { Assets }&&\text { Liabilities and stockholders' equity }\\\hline\text { Current assets }&&\text { Current liabilities }\\\text { Cash } & \$ 25 & \text { Accounts payable } & \$ 85 \\\text { Short-term investments } & 15 & \text { Accrued liabilities } & 45 \\\text { Accounts receivable } & 70 & \text { Total current liabilities } & 130 \\\text { Inventory } & 150 & \text { Long-term debt } & 240\\\text { Total current assets }&260&\text { Total liabilities }&370\\\\\text { Long-term assets }&&\text { Stockholders' equity }\\\text { Net PPE } & 390 & \text { Common stock and PIC } & 80 \\\text { Goodwill } & 210 & \text { Retained earnings } & 410\\&&\text { Total stockholders' equity }&490\\\text { Total assets }&\$860&\text { Total liabilities and equity }&\$860\end{array}$ WilcoxCorporation
Statement of Cash Flow Information
For the Year Ended December 31, 2015

$\begin{array}{ll}\text { Cash from operating activities }&\$150\\\text { Investing activities: }\\\text { Capital expenditures } & \$ 60 \\\text { Acquisitions } & \$ 10\\\text { Financing activities: }\\\text { Proceeds from long-term borrowing } & \$ 50 \\\text { Payments on long-term borrowing } & \$ 25 \\\text { Payments of cash dividends } & \$ 20\\\text { Cash paid for interest } & \$ 10 \\\text { Cash paid for income taxes } & \$ 75\end{array}$

-Wilcox's average collection period is:

A)5 days
B)9 days
C)13 days
D)15 days

Question 26

What is important to understand about the label "pro forma"?

A)Pro forma refers to GAAP-based financial statements.
B)Pro forma requires firms to present two distinct net profit amounts in their Form 10-Ks.
C)Pro forma relates to the amount of debt in a firm's capital structure.
D)Pro forma earnings or financial statements are sometimes based on a firm's own definition which is not technically a correct definition.

Question 27

Which group of people would be the most concerned about the ability of a firm to make interest and principal payments?

A)Auditors.
B)Customers.
C)Creditors.
D)Investors.

Question 28

Use the following selected financial information for Wilcox Corporation to answer questions . Wilcox Corporation
Income Statement
For the Year Ended December 31,2015
$\begin{array}{lr}\text { Net sales } & \$ 2,870 \\\text { Cost of goods sold } & 1,985\\\text { Gross profit } & \$ \overline{885} \\\text { Operating expenses } & 620\\\text { Operating profit } & \$ 265 \\\text { Interest expense } & 40\\\text { Earnings before taxes }&\$225\\\text { Income tax expense }&80\\\text { Net profit }&\$145\end{array}$ Wilcox Corporation
Balance Sheet
December 31, 2015
$\begin{array}{lclr}\text { Assets }&&\text { Liabilities and stockholders' equity }\\\hline\text { Current assets }&&\text { Current liabilities }\\\text { Cash } & \$ 25 & \text { Accounts payable } & \$ 85 \\\text { Short-term investments } & 15 & \text { Accrued liabilities } & 45 \\\text { Accounts receivable } & 70 & \text { Total current liabilities } & 130 \\\text { Inventory } & 150 & \text { Long-term debt } & 240\\\text { Total current assets }&260&\text { Total liabilities }&370\\\\\text { Long-term assets }&&\text { Stockholders' equity }\\\text { Net PPE } & 390 & \text { Common stock and PIC } & 80 \\\text { Goodwill } & 210 & \text { Retained earnings } & 410\\&&\text { Total stockholders' equity }&490\\\text { Total assets }&\$860&\text { Total liabilities and equity }&\$860\end{array}$ WilcoxCorporation
Statement of Cash Flow Information
For the Year Ended December 31, 2015

$\begin{array}{ll}\text { Cash from operating activities }&\$150\\\text { Investing activities: }\\\text { Capital expenditures } & \$ 60 \\\text { Acquisitions } & \$ 10\\\text { Financing activities: }\\\text { Proceeds from long-term borrowing } & \$ 50 \\\text { Payments on long-term borrowing } & \$ 25 \\\text { Payments of cash dividends } & \$ 20\\\text { Cash paid for interest } & \$ 10 \\\text { Cash paid for income taxes } & \$ 75\end{array}$

-Wilcox's effective tax rate is:

A)24.67%
B)27.36%
C)35.00%
D)35.56%

Question 29

Which ratios measure the extent of a firm's financing with debt relative to equity and its ability to cover interest and fixed charges?

A)Debt ratio and price-to-earnings ratio.
B)Cash flow adequacy and fixed charge coverage.
C)Days payable outstanding and gross profit margin.
D)Cash interest coverage and average collection period.

Question 30

What does a low asset turnover compared to the industry imply?

A)The investment in assets may be too high.
B)Sales are higher than average.
C)The investment in assets is too low.
D)Net income is low relative to the investment in assets.

Question 31

How is the cash conversion cycle calculated?

A)Average collection period + days inventory held + Days payable outstanding.
B)Average collection period - days inventory held + Days payable outstanding.
C)Average collection period - days inventory held - Days payable outstanding.
D)Average collection period + days inventory held - Days payable outstanding.

Question 32

What does a financial leverage index greater than one indicate about a firm?

A)Return on assets exceeds the return on equity.
B)Return on equity exceeds the return on assets.
C)The firm is not employing debt successfully.
D)The firm does not generate enough funds to cover interest payments.

Question 33

The Du Pont System shows which of the following series of relationships?

A)Net profit margin x total asset turnover = Return on investment.
B)Net profit margin x financial leverage = Return on equity.
C)Net profit margin x total asset turnover = Return on investment and Return on investment x financial leverage = Return on equity.
D)Net profit margin x total asset turnover = Return on equity and Return on equity x financial leverage = Return on investment.

Question 34

All of the following are steps of a financial statement analysis except:

A)Establish objectives of the analysis.
B)Prepare pro forma statements.
C)Study the industry in which the firm operates.
D)Develop knowledge of the firm and the quality of management.

Question 35

Use the following selected financial information for Wilcox Corporation to answer questions . Wilcox Corporation
Income Statement
For the Year Ended December 31,2015
$\begin{array}{lr}\text { Net sales } & \$ 2,870 \\\text { Cost of goods sold } & 1,985\\\text { Gross profit } & \$ \overline{885} \\\text { Operating expenses } & 620\\\text { Operating profit } & \$ 265 \\\text { Interest expense } & 40\\\text { Earnings before taxes }&\$225\\\text { Income tax expense }&80\\\text { Net profit }&\$145\end{array}$ Wilcox Corporation
Balance Sheet
December 31, 2015
$\begin{array}{lclr}\text { Assets }&&\text { Liabilities and stockholders' equity }\\\hline\text { Current assets }&&\text { Current liabilities }\\\text { Cash } & \$ 25 & \text { Accounts payable } & \$ 85 \\\text { Short-term investments } & 15 & \text { Accrued liabilities } & 45 \\\text { Accounts receivable } & 70 & \text { Total current liabilities } & 130 \\\text { Inventory } & 150 & \text { Long-term debt } & 240\\\text { Total current assets }&260&\text { Total liabilities }&370\\\\\text { Long-term assets }&&\text { Stockholders' equity }\\\text { Net PPE } & 390 & \text { Common stock and PIC } & 80 \\\text { Goodwill } & 210 & \text { Retained earnings } & 410\\&&\text { Total stockholders' equity }&490\\\text { Total assets }&\$860&\text { Total liabilities and equity }&\$860\end{array}$ WilcoxCorporation
Statement of Cash Flow Information
For the Year Ended December 31, 2015

$\begin{array}{ll}\text { Cash from operating activities }&\$150\\\text { Investing activities: }\\\text { Capital expenditures } & \$ 60 \\\text { Acquisitions } & \$ 10\\\text { Financing activities: }\\\text { Proceeds from long-term borrowing } & \$ 50 \\\text { Payments on long-term borrowing } & \$ 25 \\\text { Payments of cash dividends } & \$ 20\\\text { Cash paid for interest } & \$ 10 \\\text { Cash paid for income taxes } & \$ 75\end{array}$

-Wilcox's days payable outstanding is:

A)7 days
B)11 days
C)16 days
D)22 days

Question 36

Use the following selected financial information for Wilcox Corporation to answer questions . Wilcox Corporation
Income Statement
For the Year Ended December 31,2015
$\begin{array}{lr}\text { Net sales } & \$ 2,870 \\\text { Cost of goods sold } & 1,985\\\text { Gross profit } & \$ \overline{885} \\\text { Operating expenses } & 620\\\text { Operating profit } & \$ 265 \\\text { Interest expense } & 40\\\text { Earnings before taxes }&\$225\\\text { Income tax expense }&80\\\text { Net profit }&\$145\end{array}$ Wilcox Corporation
Balance Sheet
December 31, 2015
$\begin{array}{lclr}\text { Assets }&&\text { Liabilities and stockholders' equity }\\\hline\text { Current assets }&&\text { Current liabilities }\\\text { Cash } & \$ 25 & \text { Accounts payable } & \$ 85 \\\text { Short-term investments } & 15 & \text { Accrued liabilities } & 45 \\\text { Accounts receivable } & 70 & \text { Total current liabilities } & 130 \\\text { Inventory } & 150 & \text { Long-term debt } & 240\\\text { Total current assets }&260&\text { Total liabilities }&370\\\\\text { Long-term assets }&&\text { Stockholders' equity }\\\text { Net PPE } & 390 & \text { Common stock and PIC } & 80 \\\text { Goodwill } & 210 & \text { Retained earnings } & 410\\&&\text { Total stockholders' equity }&490\\\text { Total assets }&\$860&\text { Total liabilities and equity }&\$860\end{array}$ WilcoxCorporation
Statement of Cash Flow Information
For the Year Ended December 31, 2015

$\begin{array}{ll}\text { Cash from operating activities }&\$150\\\text { Investing activities: }\\\text { Capital expenditures } & \$ 60 \\\text { Acquisitions } & \$ 10\\\text { Financing activities: }\\\text { Proceeds from long-term borrowing } & \$ 50 \\\text { Payments on long-term borrowing } & \$ 25 \\\text { Payments of cash dividends } & \$ 20\\\text { Cash paid for interest } & \$ 10 \\\text { Cash paid for income taxes } & \$ 75\end{array}$

-Wilcox's quick ratio is:

A)0.85
B)2.00
C)1.00
D)0.75

Question 37

Use the following selected financial information for Wilcox Corporation to answer questions . Wilcox Corporation
Income Statement
For the Year Ended December 31,2015
$\begin{array}{lr}\text { Net sales } & \$ 2,870 \\\text { Cost of goods sold } & 1,985\\\text { Gross profit } & \$ \overline{885} \\\text { Operating expenses } & 620\\\text { Operating profit } & \$ 265 \\\text { Interest expense } & 40\\\text { Earnings before taxes }&\$225\\\text { Income tax expense }&80\\\text { Net profit }&\$145\end{array}$ Wilcox Corporation
Balance Sheet
December 31, 2015
$\begin{array}{lclr}\text { Assets }&&\text { Liabilities and stockholders' equity }\\\hline\text { Current assets }&&\text { Current liabilities }\\\text { Cash } & \$ 25 & \text { Accounts payable } & \$ 85 \\\text { Short-term investments } & 15 & \text { Accrued liabilities } & 45 \\\text { Accounts receivable } & 70 & \text { Total current liabilities } & 130 \\\text { Inventory } & 150 & \text { Long-term debt } & 240\\\text { Total current assets }&260&\text { Total liabilities }&370\\\\\text { Long-term assets }&&\text { Stockholders' equity }\\\text { Net PPE } & 390 & \text { Common stock and PIC } & 80 \\\text { Goodwill } & 210 & \text { Retained earnings } & 410\\&&\text { Total stockholders' equity }&490\\\text { Total assets }&\$860&\text { Total liabilities and equity }&\$860\end{array}$ WilcoxCorporation
Statement of Cash Flow Information
For the Year Ended December 31, 2015

$\begin{array}{ll}\text { Cash from operating activities }&\$150\\\text { Investing activities: }\\\text { Capital expenditures } & \$ 60 \\\text { Acquisitions } & \$ 10\\\text { Financing activities: }\\\text { Proceeds from long-term borrowing } & \$ 50 \\\text { Payments on long-term borrowing } & \$ 25 \\\text { Payments of cash dividends } & \$ 20\\\text { Cash paid for interest } & \$ 10 \\\text { Cash paid for income taxes } & \$ 75\end{array}$

-Wilcox's cash flow margin is:

A)5.23%
B)5.85%
C)6.24%
D)6.67%

Question 38

Use the following selected financial information for Wilcox Corporation to answer questions . Wilcox Corporation
Income Statement
For the Year Ended December 31,2015
$\begin{array}{lr}\text { Net sales } & \$ 2,870 \\\text { Cost of goods sold } & 1,985\\\text { Gross profit } & \$ \overline{885} \\\text { Operating expenses } & 620\\\text { Operating profit } & \$ 265 \\\text { Interest expense } & 40\\\text { Earnings before taxes }&\$225\\\text { Income tax expense }&80\\\text { Net profit }&\$145\end{array}$ Wilcox Corporation
Balance Sheet
December 31, 2015
$\begin{array}{lclr}\text { Assets }&&\text { Liabilities and stockholders' equity }\\\hline\text { Current assets }&&\text { Current liabilities }\\\text { Cash } & \$ 25 & \text { Accounts payable } & \$ 85 \\\text { Short-term investments } & 15 & \text { Accrued liabilities } & 45 \\\text { Accounts receivable } & 70 & \text { Total current liabilities } & 130 \\\text { Inventory } & 150 & \text { Long-term debt } & 240\\\text { Total current assets }&260&\text { Total liabilities }&370\\\\\text { Long-term assets }&&\text { Stockholders' equity }\\\text { Net PPE } & 390 & \text { Common stock and PIC } & 80 \\\text { Goodwill } & 210 & \text { Retained earnings } & 410\\&&\text { Total stockholders' equity }&490\\\text { Total assets }&\$860&\text { Total liabilities and equity }&\$860\end{array}$ WilcoxCorporation
Statement of Cash Flow Information
For the Year Ended December 31, 2015

$\begin{array}{ll}\text { Cash from operating activities }&\$150\\\text { Investing activities: }\\\text { Capital expenditures } & \$ 60 \\\text { Acquisitions } & \$ 10\\\text { Financing activities: }\\\text { Proceeds from long-term borrowing } & \$ 50 \\\text { Payments on long-term borrowing } & \$ 25 \\\text { Payments of cash dividends } & \$ 20\\\text { Cash paid for interest } & \$ 10 \\\text { Cash paid for income taxes } & \$ 75\end{array}$

-Wilcox's debt ratio is:

A)40.11%
B)43.02%
C)55.80%
D)56.32%

Question 39

Which group of people would be the most concerned about the operating areas that have contributed to the success of the firm and which have not?

A)Customers.
B)Management.
C)Auditors.
D)Creditors.

Question 40

Which ratios help assess the firm's ability to meet cash needs as they arise?

A)Current ratio and cash flow liquidity ratio.
B)Average collection period and net profit margin.
C)Debt ratio and dividend payout.
D)Operating profit margin and return on equity.

Question 41

What other sources of information will a financial statement analyst find useful other than the financial statements and related notes?

Question 42

Define cash flow adequacy and the importance of this ratio to credit rating agencies.

Question 43

Financial ratio data is listed below for Gallery of Dreams.Construct a list of strengths and weaknesses for the firm after analyzing the ratios.
Gallery of Dreams
Ratios
$\begin{array}{lrrrr}\text { Ratio }&\text { Industry }&2015&2014&2013\\\hline\text { Current } & 2.50 \mathrm{x} & 4.48 \mathrm{x} & 4.06 \mathrm{x} & 3.48 \mathrm{x} \\\text { Quick } & 0.80 \mathrm{x} & 1.47 \mathrm{x} & 1.18 \mathrm{x} & 0.96 \mathrm{x} \\\text { Average collection period } & 11 \text { days } & 16 \text { days } & 15 \text { days } & 9 \text { days } \\\text { Inventory turnover } & 2.30 \mathrm{x} & 1.19 \mathrm{x} & 1.24 \mathrm{x} & 1.37 \mathrm{x}\\\text { Days payable outstanding } & 15 \text { days } & 11 \text { days } & 12 \text { days } & 8 \text { days } \\\text { Fixed asset turnover } & 17.50 \mathrm{x} & 9.74 \mathrm{x} & 9.09 \mathrm{x} & 8.85 \mathrm{x} \\\text { Total asset turnover } & 2.80 \mathrm{x} & 1.50 \mathrm{x} & 1.67 \mathrm{x} & 1.82 \mathrm{x} \\\text { Debt ratio } & 62.00 \% & 29.47 \% & 34.04 \% & 39.17 \%\\\text { Long term debt to }\\\text { total capitalization } & 25.53 \% & 14.09 \% & 18.91 \% & 22.33 \% \\\text { Times interest earned } & 9.93 \mathrm{x} & 22.02 \mathrm{x} & 19.00 \mathrm{x} & 14.23 \mathrm{x} \\\text { Fixed charge coverage } & 8.69 \mathrm{x} & 4.59 \mathrm{x} & 4.47 \mathrm{x} & 4.25 \mathrm{x} \\\text { Gross profit margin } & 31.10 \% & 59.21 \% & 59.39 \% & 58.52 \% \\\text { Operating profit margin } & 8.06 \% & 22.05 \% & 21.86 \% & 20.52 \%\\\text { Net profit margin } & 4.32 \% & 11.89 \% & 11.00 \% & 10.97 \% \\\text { Return on investment } & 9.21 \% & 17.97 \% & 18.28 \% & 18.35 \% \\\text { Return on equity } & 11.34 \% & 24.14 \% & 27.51 \% & 29.88 \%\end{array}$

Question 44

Using the financial ratios calculated from the 2015 annual report of PVC Pipes, assess the short-term liquidity, operating efficiency, capital structure and long-term solvency and profitability of the firm.

Question 45

Using the ratios and information given below for PepCo Company, analyze the short-term liquidity of the firm.

Question 46

List and discuss the ratios that make up the calculation of the cash conversion cycle.

Question 47

Explain the key items of interest to the following groups of people when completing a financial statement analysis: investors, creditors and management.

Question 48

The following ratios have been calculated for Hi-Tech Toys.Analyze the capital structure, long-term solvency, and profitability of Hi-Tech Toys.

Question 49

The following ratios have been calculated for the Solar Tech Company.Analyze the profitability of Solar Tech Company.

Question 50

Explain the difference between the current ratio and the cash flow liquidity ratio.

Question 51

The following categories of ratios are used in financial statement analysis:
a.Liquidity
b.Operating efficiency (also referred to as Activity)
c.Leverage
d.Profitability
e.Market measures
Classify the following ratios according to the above categories:
(1) Dividend payout
(2) Fixed charge coverage
(3) Cash flow margin
(4) Days inventory held
(5) Times interest earned
(6) Net profit margin
(7) Earnings per share
(8) Fixed asset turnover
(9) Total asset turnover
(10) Current ratio

Question 52

Using the ratios and information given below for SportsOutlet.com, analyze the short-term liquidity and operating efficiency of the firm.

Question 53

List and define the five categories of ratios generally used in financial statement analysis.

Question 54

The following ratios have been calculated for Wholesale Appliances, Inc.Analyze the capital structure and long-term solvency of Wholesale Appliances, Inc.
2015------2014

Question 55

Using the following information for Tiger Inc.calculate earnings per share, the price-to earnings ratio, dividend payout and dividend yield for the firm.Analyze these market ratios.