1. Analyzing the relative size of various balance sheet or income statement items in relation to a base amount for the same company within a given year is called:
a. Comparison with industry norms
b. Vertical analysis
c. Horizontal analysis
d. Consolidation
2. Comparative income statements for the Wheeler Corporation for 2001 and 2000 report sales as $25 million and $20 million respectively. What would horizontal analysis of sales reveal?
a. Sales increased by 20%
b. Sales increased by 25%
c. Sales decreased by 20%
d. Sales decreased by 25%
3. Below is the increase (decrease) column of the comparative income statement of Wheeler Corporation showing the percentage changes in the items listed from 2000 to 2001. (For example, net sales increased 20% from 2000 to 2001.)
Considering the first three lines in the income statement, which of the following statements about Wheeler’s financial performance is correct?
a. The company’s gross margin as a percentage of sales is increasing.
b. Sales are growing at a faster rate than cost of goods sold.
c. The gross margin on sales line is saying that 6 cents of every dollar of sales is profit.
d. Cost of goods sold is increasing at a faster rate than sales.
4. Using horizontal analysis, compute the increase or (decrease) for the following balance sheet items:
Select the correct alternative showing the percent changes from 2000 to 2001:
a. 20%, (50%), 50%
b. 16.6%, (200%), 150%
c. 20, 50%, 66%
d. 16.6%, (50%), 50%
5. Using vertical analysis for the excerpts of the incomes statement of Wheeler Corporation for 2001, determine the common size percents for the three items sales, cost of goods sold, and gross profit on sales respectively:
a. 100%, 50%, 50%
b. 22%, 50%, 50%
c. 100%, 55%, 45%
d. 45%, 55%, 100%
6. Below are two summarized balance sheets for two companies: Large Corporation and Small Incorporated. The amounts are rounded to the nearest $ million.
Use vertical analysis to determine the correct percentages to be aside each line item in the above statements; then select the best answer to describe the differences between the two companies.
a. Small’s assets are more liquid than Large’s.
b. Earnings growth of Large is superior to Small.
c. A greater proportion of Small’s assets is financed by debt compared to Large’s assets.
d. Large has more modern equipment than Small.
7. Using the balance sheets below, calculate the debt-equity ratio for both companies. Select the correct answer below for Large Corp. and Small Inc. respectively.
a. .3 for Large and 2.0 for Small. Small is the riskier company.
b. .25 for Large and .66 for Small. Small is the riskier company.
c. 2.0 for Large and 1.0 for Small. Large is the riskier company.
d. 3.0 for Large and .5 for Small. Large is the riskier company.
8. Select the statement below that best describes the financial performance of Wheeler Corporation for 2001 and 2000 after first calculating the gross profit margin ratio (GPM) for 2001 and 2000.
a. The GPM has improved in 2001 compared to 2000.
b. The GPM has declined in 2001 compared to 2000.
c. The GPM did not change from 2000 to 2001.
d. The GPM is not of concern since the dollar amount of gross profit increased.
9. Selected information from the financial statements for The Gap Inc. shown in Appendix A is shown below. Calculate the inventory turnover (ITR) for 1998 and 1997. Assume that the average merchandise inventory for 1997 is $500,000 (000 omitted). After you have calculated the ITR for both years, select the statement below that best describes The Gap’s performance with regard to inventories. Note that all figures except average shares outstanding are actually 000's omitted.
a. The ITR improved in 1998 compared to 1997.
b. The number of days that an inventory item stated in inventory was greater in 1997 than in 1998.
c. The Gap’s decline in inventory turnover in 1998 and therefore addition in time that merchandise is held is approximately equivalent to 4 additional days in 1998 versus 1997.
d. Because the dollar amount of sales increased from 1997 to 1998 the ITR is not useful in judging Gap’s inventory management.
10. Again using the Gap financial information shown below, indicate the years that return on sales (ROS) and earnings per share (EPS) exhibit the best performance. Note that all figures except average shares outstanding are actually 000's omitted.
a. 1998 is better than 1997 for ROS and EPS
b. 1997 is better than 1998 for ROS and EPS
c. 1998 is better than 1997 for ROS and 1997 is better than 1998 for EPS
d. 1997 is better than 1998 for ROS and 1998 is better than 1997 for EPS
11. The Artica Company has the following financial information:
There were no changes in capital stock during the year. Although not separately, depreciation expense for the year 2001 was $9. The amount of dividends for the year must have been:
a. $7
b. $48
c. $8
d. $15
12. The Artica Company has the following financial information:
Although not separately, depreciation expense for the year 2001 was $9. The amount of fixed assets purchased during the year must have been:
a. $9
b. $4
c. $5
d. $6