Reading 35: Financial Analysis Techniques-LOS c 习题精选 2011, statements, techniques, interpret, center

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Session 8: Financial Reporting and Analysis: The Income Statement, Balance Sheet, and Cash Flow Statement
Reading 35: Financial Analysis Techniques

LOS c: Describe the various techniques of common-size analysis and interpret the results of such analysis.

 

 

Common size income statements express all income statement items as a percentage of:

A) net income.

B) assets.

C) sales.

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Common size income statements express all income statement items as a percentage of sales. Note that common size balance sheets express all balance sheet accounts as a percentage of total assets.

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Matrix, Inc.’s common size income statement for the years ended December 31, 20X1 and 20X2 included the following information (percent of net sales):

	20X1	20X2
Sales	100	100
Cost of Goods Sold	(55)	(60)
Gross Profit	45	40
Selling General & Administrative	(5)	(5)
Depreciation	(7)	(8)
Operating Profit (EBIT)	33	37
Interest Expense	(15)	(7)
Earnings before Taxes	18	30
Income Tax Expense	(6)	(10)
Earnings after Taxes	12	20

Analysis of this data indicates that from 20X1 to 20X2:

A) interest expense per dollar of sales declined.

B) cost of goods sold increased.

C) the effective tax rate increased.

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On a common size income statement, all amounts are stated as a percentage of net sales. Dollars of interest expense per dollar of sales has declined from 0.15 to 0.07. The other interpretations listed are not necessarily correct. The volume of sales is not shown on this common-size income statement. COGS increased as a percentage of sales, but if sales volume decreased, COGS may have decreased as well. The company's effective tax rate (income tax expense / pretax income) can be calculated from a common-size income statement. Here the effective tax rate was 33% in both years.

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How would the collection of accounts receivable most likely affect the current and cash ratios?

Current ratio

Cash ratio

A) Increase Increase

B) No effect Increase

C) No effect No effect

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Collecting receivables increases cash and decreases accounts receivable. Thus, current assets do not change and the current ratio is unaffected. Because the numerator of the cash ratio only includes cash and marketable securities, collecting accounts receivable increases the cash ratio.

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Comparing a company’s ratios with those of its competitors is best described as:

A) longitudinal analysis.

B) cross-sectional analysis.

C) common-size analysis.

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Comparing a company’s ratios with those of its competitors is known as cross-sectional analysis.

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To study trends in a company’s cost of goods sold (COGS), an analyst should standardize COGS by dividing it by:

A) net income.

B) sales.

C) prior year COGS.

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In a common-size income statement, each income statement account is divided by sales. COGS is then production costs as a percentage of the sales price.