Horizontal Analysis/Trend Analysis
To compute trend percentages the analyst should:
a. Select a base period, divide analysis period amount by the base period amount and multiply that amount by 100.
b. Subtract the analysis period number from the base period number.
c. Subtract the base period amount from the analysis period amount, divide the result by the analysis period amount, then multiply that amount by 100.
d. Compare amounts across industries.
e. Compare amounts to a competitor.
a. Select a base period, divide analysis period amount by the base period amount and multiply that amount by 100.
The common-size percent is computed by:
a. Dividing the analysis amount by the base amount.
b. Dividing the base amount by the analysis amount.
c. Dividing the analysis amount by the base amount and multiplying the result by 100.
d. Dividing the base amount by the analysis amount and multiplying the result by 100.
e. Subtracting the base amount from the analysis amount and multiplying the result by 100.
c. Dividing the analysis amount by the base amount and multiplying the result by 100.
Refer to the following selected financial information from WorkFit Corporation. Compute the company's acid-test ratio.
Cash $ 42,250 Short-term investments 59,180 Accounts receivable, net 79,500 Merchandise inventory 115,000 Prepaid expenses 9,700 Current liabilities 111,000
a. 2.76. b. 2.67. c. 0.91. d. 1.10. e. 1.63.
e. 1.63.
($42,250 + $59,180 + $79,500)/$111,000 = 1.63
Clairmont Industries reported net income of $282,828, average total assets of $637,000, and comprehensive income of $354,172. The return on total assets is:
a. 55.6%. b. 78.9%. c. 61.5%. d. 44.4%. e. 25.1%.
d. 44.4%.
$282,828/$637,000 = 44.4%
Refer to the following selected financial information from Sammy Company Compute the company's current ratio. Current Assets 340,800 Plant assets 388,000 Current Liabilities 120,000 Net sales 676,000 Net Income 75,000
a. 5.63. b. 2.84. c. 6.07. d. 3.60. e. 3.23.
b. 2.84.
Year 2: $340,800/$120,000 = 2.84
Ash Company reported sales of $400,000 for Year 1, $450,000 for Year 2, and $500,000 for Year 3. Using Year 1 as the base year, what is the revenue trend percent for Years 2 and 3?
a. 80% for Year 2 and 90% for Year 3.
b. 88% for Year 2 and 80% for Year 3.
c. 88% for Year 2 and 90% for Year 3.
d. 112.5% for Year 2 and 125% for Year 3.
e. 125% for Year 2 and 112.5% for Year 3.
d. 112.5% for Year 2 and 125% for Year 3.
Year 2: $450,000/$400,000 × 100 = 112.5%
Year 3: $500,000/$400,000 × 100 = 125%
Common-size financial statements:
a. Is also known as horizontal analysis.
b. Do not emphasize the relative importance of each item.
c. Show changes in the relative importance of each financial statement item.
d. Show financial amounts in side-by-side columns on a single statement.
e. Show the dollar amount of change for financial statement items over time.
c. Show changes in the relative importance of each financial statement item.
Refer to the following selected financial information from Weekend Getaways Incorporated Compute the company's days' sales uncollected for Year 2.
Note: Use 365 days a year.
Year 2 Year 1
Accounts receivable, net 98,760 86,600
Net sales 823,000 793,000
a. 39.9. b. 43.8. c. 45.5. d. 38.4. e. 42.7.
b. 43.8.
Year 2: $98,760/$823,000 × 365 = 43.8
A company had a market price of $27.50 per share, earnings per share of $1.25, and dividends per share of $0.40. Its price-earnings ratio equals:
a. 3.1. b. 22.0. c. 93.8. d. 32.0. e. 3.3.
b. 22.0.
$27.50/$1.25 = 22.0
Refer to the following selected financial information from Whirlpool Company. Compute the company's accounts receivable turnover for Year 2.
Year 2 Year 1
Accounts receivable, net 86,300 82,700
Net sales 721,630 693,250
a. 8.36. b. 8.38. c. 4.78. d. 8.20. e. 8.54.
e. 8.54.
$721,630/[($86,300 + $82,700)/2] = 8.54
A company's sales in Year 1 were $250,000 and in Year 2 were $287,500. Using Year 1 as the base year, the percent change for Year 2 compared to the base year is:
a. 87%. b. 100%. c. 115%. d. 15%. e. 13%.
d. 15%.
[($287,500 − $250,000)/$250,000] × 100 = 15%
A corporation reported cash of $27,550, total assets of $475,000, and current liabilities of $157,895 on its balance sheet. Its common-size percent for cash equals:
a. 17.45%. b. 58.00%. c. 100.00%. d. 5.80%.
e. 1707.00%.
d. 5.80%.
($27,550/$475,000) × 100 = 5.80%
Refer to the following selected financial information from Helpful Hardware. Compute the company’s days’ sales in inventory for Year 2. Note: Use 365 days a year.
Year 2 Year 1
Merchandise inventory 283,000 265,500
Cost of goods sold 474,400 421,100
a. 217.7. b. 245.3. c. 230.1. d. 204.3. e. 223.6.
a. 217.7.
Year 2: $283,000/$474,400 × 365 = 217.7
A company reports basic earnings per share of $3.50, cash dividends per share of $1.25, and a market price per share of $62.50. The company's dividend yield equals:
a. 2.00%. b. 2.14%. c. 3.60%. d. 5.60%. e. 8.50%.
a. 2.00%.
$1.25/$62.50 = 2.00%
Refer to the following selected financial information from Phantom Corporation Compute the company's inventory turnover for Year 2.
Year 2 Year 1
Merchandise inventory 271,000 253,000
Cost of goods sold 484,700 433,100
a. 1.65. b. 1.79. c. 1.85. d. 0.89. e. 1.71.
c. 1.85.
Year 2: $484,700/[($271,000 + $253,000)/2] = 1.85
Use the following selected information from Carleton Incorporated to determine the Year 1 and Year 2 trend percentages for cost of goods sold using Year 1 as the base.
Year 2 Year 1
Net sales $ 450,000 $ 425,000
Cost of goods sold 304,325 259,000
Operating expenses 55,240 53,240
Net earnings 27,750 19,800
a. 36.4% for Year 2 and 41.1% for Year 1.
b. 55.0% for Year 2 and 56.0% for Year 1.
c. 119.4% for Year 2 and 100.0% for Year 1.
d. 117.5% for Year 2 and 100.0% for Year 1.
e. 65.1% for Year 2 and 64.6% for Year 1.
d. 117.5% for Year 2 and 100.0% for Year 1.
Year 2: $304,325/$259,000 × 100 = 117.5%
Year 1: $259,000/$259,000 × 100 = 100.0%
Use the following selected information from Allen Company to determine the Year 1 and Year 2 common size percentages for operating expenses using Net sales as the base.
Year 2 Year 1
Net sales $ 276,200 $ 231,400
Cost of goods sold 151,910 129,584
Operating expenses 55,240 53,222
Net earnings 27,820 19,820
a. 36.4% for Year 2 and 41.1% for Year 1.
b. 55.0% for Year 2 and 56.0% for Year 1.
c. 23.9% for Year 2 and 23.0% for Year 1.
d. 103.8% for Year 2 and 100.0% for Year 1.
e. 20.0% for Year 2 and 23.0% for Year 1.
e. 20.0% for Year 2 and 23.0% for Year 1.
Year 2: $55,240/$276,200 × 100 = 20.0%
Year 1: $53,222/$231,400 × 100 = 23.0%
Refer to the following selected financial information from Mojave Corporation. Compute the company's times interest earned.
Interest expense $ 9,100
Income tax expense 22,670
Net income after tax 56,500
a. 6.2. b. 2.5. c. 8.7. d. 9.7. e. 3.7.
d. 9.7.
Year 2: ($56,500 + $22,670 + $9,100)/$9,100 = 9.7
Refer to the following selected financial information from Gomez Electronics. Compute the company's profit margin for Year 2.
Year 2 Year 1
Net sales $ 478,000 $ 426,250
Cost of goods sold 276,300 250,120
Interest expense 9,700 10,700
Net income before tax 66,930 52,680
Net income after tax 45,410 39,900
a. 14.0%. b. 12.4%. c. 9.5%. d. 16.0%. e. 33.9%.
c. 9.5%.
Year 2: $45,410/$478,000 = 9.5%
Martinez Corporation reported net sales of $765,000, net income of $141,525, and total assets of $7,634,409. The profit margin is:
a. 539.0%. b. 5.4%. c. 81.4%. d. 1.9%. e. 18.5%.
e. 18.5%.
$141,525/$765,000 = 18.5%
Yeats Corporation's sales in Year 1 were $396,000 and in Year 2 were $380,160. Using Year 1 as the base year, the percent change for Year 2 compared to the base year is:
a. −104.0%. b. 100.0%. c. −4.0%. d. 96.0%.
e. 4.2%.
c. −4.0%.
($380,160 − $396,000/$396,000) × 100 = −4.0%
Use the following selected information from Letterman Corporation to determine the Year 1 and Year 2 common size percentages for cost of goods sold using Net sales as the base.
Year 2 Year 1
Net sales $ 423,800 $ 346,600
Cost of goods sold 192,400 133,100
Operating expenses 70,090 67,550
Net earnings 35,380 25,130
a. 8.3% for Year 2 and 7.2% for Year 1.
b. 161.4% for Year 2 and 172.7% for Year 1.
c. 122.3% for Year 2 and 100.0% for Year 1.
d. 45.4% for Year 2 and 38.4% for Year 1.
e. 61.9% for Year 2 and 57.9% for Year 1.
d. 45.4% for Year 2 and 38.4% for Year 1.
Year 2: $192,400/$423,800 × 100 = 45.4%
Year 1: $133,100/$346,600 × 100 = 38.4%
Refer to the following selected financial information from Winterfell Company. Compute the company's debt to equity ratio for Year 2.
Year 2 Year 1
Total assets $327,800 $301,000
Total liabilities 172,040 169,300
Total equity 156,400 131,700
a. 0.9. b. 1.1. c. 0.5. d. 1.3. e. 2.1.
b. 1.1.
Year 2: $172,040/$156,400 = 1.1
Refer to the following selected financial information from Gomez Electronics. Compute the company’s return on total assets for Year 2.
Year 2 Year 1
Net income before tax $69,150 $54,580
Net income after tax 47,950 41,800
Total assets 320,900 299,400
Total liabilities 171,900 169,200
Total equity 149,000 130,200
a. 15.5%. b. 22.3%. c. 14.9%. d. 2.8%. e. 9.8%.
a. 15.5%.
Year 2: $47,950/[($320,900 + $299,400)/2] = 15.5%
Carducci Corporation reported net sales of $3.51 million and beginning total assets of $0.99 million and ending total assets of $1.39 million. The average total asset amount is:
a. $2.12 million. b. $2.52 million. c. $0.28 million.
d. $0.35 million. e. $1.19 million.
e. $1.19 million.
($990,000 + $1,390,000)/2 = $1,190,000