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Exam 18: Financial Statement Analysis

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Question 51

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When comparing two companies,what kind of information does a company's rate of return on total assets provide?

A) How effectively each company uses leverage to finance its business
B) How much profit each company generates with each dollar of sales
C) How effectively a company collects cash on credit sales
D) How effectively each company uses assets to generate profits

E) All of the above
F) A) and B)

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Question 52

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When comparing a company's results from one year to the next,what kind of information does a company's earnings per share figure provide?

A) Whether the company's total profit has gone up or down
B) Whether the amount of profit generated by one share has gone up or down
C) Whether the market price of a share has gone up or down
D) Whether the company generates more or less profit per sales dollar

E) A) and B)
F) None of the above

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Question 53

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When preparing an annual report,the earnings per share amount is generally shown on a company's income statement.

The current ratio is used for which kind of evaluation?

Benchmarking means comparing a company's financial results to:

Arlington Company has prepared the following common-size income statement to compare its performance with industry averages: $\begin{array} { | l | r | r | } \hline & \text { Arlington Co. } & \text { Industry } \\\hline \text { Revenues } & 100.0 \% & 100.0 \% \\\hline \text { Cost of sales } & 43.8 \% & 39.7 \% \\\hline \text { Gross profit } & 56.2 \% & 60.3 \% \\\hline \text { Selling and general expenses: } & & \\\hline \text { Sales and marketing expense } & 18.1 \% & 21.4 \% \\\hline \text { General and administrative expense } & 12.0 \% & 14.2 \% \\\hline \text { Research and development expense } & 4.1 \% & 4.0 \% \\\hline \text { Total selling and general expenses } & 34.2 \% & 39.6 \% \\\hline & & \\\hline \text { Profit before tax } & 22.0 \% & 20.7 \% \\\hline \text { Income taxexpense } & 4.4 \% & 4.2 \% \\\hline \text { Profit (loss) } & 17.6 \% & 16.5 \% \\\hline\end{array}$ Which of the following statements can be correctly concluded from the above data?

Which of the following is the definition of vertical analysis?

The Arlington Company prepared a common-size income statement to compare its results with its key competitor,Bardo Company.Please refer to the following data: $\begin{array} { | l | r | r | } \hline & \text { Arlington Co. } & { \text { Bardo Co. } } \\\hline \text { Revenues } & 100.0 \% & 100.0 \% \\\hline \text { Cost of sales } & 42.1 \% & 47.8 \% \\\hline \text { Gross profit } & 57.9 \% & 52.2 \% \\\hline \text { Selling and general expenses: } & & \\\hline \text { Sales and marketing expense } & 26.3 \% & 8.6 \% \\\hline \text { General and administrative expense } & 12.0 \% & 10.8 \% \\\hline \text { Research and development expense } & 4.1 \% & 10.2 \% \\\hline \text { Total selling and general expenses } & 42.4 \% & 29.6 \% \\\hline & & \\\hline \text { Profit before tax } & 15.5 \% & 22.6 \% \\\hline \text { Income taxexpense } & 3.3 \% & 5.8 \% \\\hline \text { Profit (loss) } & 12.2 \% & 16.8 \% \\\hline\end{array}$ Which of the following statements can be correctly concluded from the above data?

The dividend yield is used for which kind of evaluation?

The rate of return on net sales is used for which kind of evaluation?

Oglethorpe Company reports the following information from the vertical analysis of their balance sheet: Current assets: 23) 5 % in 2017 23) 9% in 2016 Which of the following statements could be logically concluded from the above data?

When comparing one company to another,what kind of information does the accounts receivable turnover provide?

Please refer to the vertical analysis of income statement data shown below: The figure 8.5% shown for profit in 2016 signifies that:

Which of the following is NOT true of benchmarking?

In a vertical analysis of the income statement,each line item is shown as a percentage of gross profit.

Arlington Company has prepared the following common-size income statement to compare its performance with industry averages: $\begin{array} { | l | r | r | } \hline & \text { Arlington Co. } & { \text { Industry } } \\\hline \text { Revenues } & 100.0 \% & 100.0 \% \\\hline \text { Cost of sales } & 43.8 \% & 39.7 \% \\\hline \text { Gross profit } & 56.2 \% & 60.3 \% \\\hline \text { Selling and general expenses: } & & \\\hline \text { Sales and marketing expense } & 18.1 \% & 21.4 \% \\\hline \text { General and administrative expense } & 12.0 \% & 14.2 \% \\\hline \text { Research and development expense } & 4.1 \% & 4.0 \% \\\hline \text { Total selling and general expenses } & 34.2 \% & 39.6 \% \\\hline & & \\\hline \text { Profit before tax } & 22.0 \% & 20.7 \% \\\hline \text { Income taxexpense } & 4.4 \% & 4.2 \% \\\hline \text { Profit (loss) } & 17.6 \% & 16.5 \% \\\hline\end{array}$ Based on the above data,an analyst could conclude that Arlington's total profit is higher than the industry average.

The debt-to-equity ratio is used for which kind of evaluation?

If an analyst wishes to see how sales revenue of a company has changed from one year to the next,which of the following types of financial statement analysis would be used?

If you are comparing your company's results with those of other companies in the industry,the process is called:

Which of the following factors might suggest that a company is having difficulty selling its inventory?