Study Session 10 Financial Reporting and Analysis:
Techniques, Applications, and International
Standards Convergence
(财务报表分析: 技术、应用及国际趋同)
(一) 强化习题
1. A company has a cash conversion cycle of 70 days. If the company'
s payables turnover decreases from 11 to 10 and days of sales
outstanding increase by 5, the company's cash conversion cycle will :
A. decrease by approximately 8 days.
B. decrease by approximately 3 days.
C. increase by approximately 2 days.
2. The following data pertains to a company's common-sized financial
statements.
Current assets 40%
Total debt 40%
Net income 16%
Total assets $ 2000
Sales $1500
Total asset turnover ratio 0.75
The firm has no preferred stock in its capital structure.
The company' s after-tax return on common equity is :
A. 15%.
B. 16%.
C. 20%.
3. A company has a cash conversion cycle of 80 days. If the company'
s average receivables turn-over increases from 11 to 12, the company'
s cash conversion cycle:
A. decreases by approximately 3 days.
B. increases by approximately 3 days.
C. decreases by approximately 30 days.
4. Which of the following is most likely presented on a common-size
balance sheet or common-size income statement?
A. Total asset turnover.
B. Operating profit margin.
C. Inventory turnover.
5. Study the following data, calculate the return on equity for 2001
and 2002.
2001 2002
Pre-interest profit margin(EBIT/S) 0.3 0.15
Asset turnover (S/A)
2
2
Leverage multiplier f A/E)
2
2
Tax retention rate (1-t)
0.8
0.8
Interest expense ratio (I/A)
0.06 0.06
2001 2002
①A. 0.864 0.384
②B. 0.673 0.271
③C. 0.384 0.864
A. ① B. ② C. ③
6. Based on the following information, calculate the basic earnings
per share.
Income after tax: $180000
50000 common stock of $ 5 par: $ 250000
10000, 8% preference share of $ 5 par: $ 50000
A. $3.23.
B. $3.52.
C. $4.97.
7. A company being analyzed has net income of $ 97, liabilities of
$ 600, preferred equity of $ 30, total shareholder equity of $ 700,
interest expense of $ 48, and preferred dividends of $1.80. What is
the return on common equity?
A. 7.00%.
B. 14.21%.
C. 10.18%.
8. A company sold its receivables but retains the risk associated
with bad debts. When reviewing this company, a financial analyst
would adjust the company' s debt-to-equity ratio and its accounts
receivable turnover ratio:
Debt-to-equity Receivables turnover
①A. Upward Upward
②B. Downward Upward
③C. Upward Downward
A. ① B. ② C. ③
Use the following data for Questions.
Bentlom Company's common sized financial statements show that:
Earnings after taxes 15 %
Current liabilities 20%
Equity 45 %
Sales $ 800
Cash 10%
Total assets $ 2000
Accounts receivable 15%
Inventory. 20%
9. Bentlom' s long-term debt-to-equity ratio and current ratio are
closest to:
A. 77.8% ;2.25.
B. 98.2% ;2. 50.
C. 98.2% ;2. 25.
10. Bentlom' s after-tax return on equity (ROE) is:
A. 6.0%.
B. 12.0%.
C. 13.3%.
11. The main difference between the current ratio and the quick ratio
is that the quick ratio excludes :
A. cost of goods sold.
B. inventory.
C. sales.
12. Assume a firm with a debt to equity ratio of 0.50 and debt equal
to $ 35 million makes a commitment to acquire raw materials with a
present value of $12 million over the next 3 years. For purposes of
analysis the best estimate of the debt to equity ratio should be :
A. 0.343.
B. 0.500.
C. 0.671.
13. The cash conversion cycle is the:
A. sum of the time it takes to sell inventory and the time it takes
to collect accounts receivable.
B. length of time it takes the firm to pay the credit extended to it
for purchases.
C. sum of the time it takes to sell inventory and collect on accounts
receivable, less the time it takes to pay for credit purchases.
14. An analyst has gathered the following information about a company:
Cost of goods sold equals 65 percent of sales
Inventory of $ 450000
Sales of $ 1 million
What is the value of this firm' s average inventory processing period
using a 365-day year?
A. 117 days.
B. 94 days.
C. 252.7 days.
15. Using a 365-day year, if a firm has net annual sales of $ 250000
and average receivables of $150000, what is its average collection
period?
A. 219.0 days.
B. 1.7 days.
C. 96 days.
16. Given the following income statement:
Net Sales
200
Cost of Goods Sold
55
Gross Profit
145
Operating Expenses
30
Operating Profit (EBIT)
115
Interest
15
Earnings Before Taxes (EBT)
100
Taxes
40
Earnings After Taxes (EAT)
60
What are the interest coverage ratio and the net profit margin?
Interest Coverage Ratio Net Profit Margin
①A. 7.67 0.30
②B. 0.57 0.56
③C. 2.63 0.30
A. ① B. ② C. ③
17. A firm's financial statements reflect the following:
EBIT
$ 2000000
Sales
$16000000
Interest expense
$ 900000
Total assets
$12300000
Equity
$ 7000000
Effective tax rate
35%
Dividend payout rate
28%
0Based on this information, what is the firm's sustainable growth
rate?
A. 7.35%.
B. 8.82%.
C. 9.10%.
18. An analysis of the industry reveals that firms have been paying
out 45 percent of their earnings in dividends, asset turnover = 1.2 ;
asset-to-equity (A/E) = 1.1 and profit margins are 8 percent. What is
the industry' s projected growth rate?
A. 4.55%.
B. 4.95%.
C. 5.81%.
19. Are the statements about the following valuation metrics true or
false?
Statement 1: As compared to the price-to-earnings ratio, the priceto-cash flow ratio is easier to manipulate because management can
easily control the timing of the cash flows.
Statement 2: One of the benefits of earnings per share as a valuation
metric is that it facilitates the comparison of firms of different
sizes.
Statement 1 Statement 2
①A. False True
②B. True False
③C. False False
A. ① B. ② C. ③
20. In preparing a forecast of future financial performance, which of
the following best describes sensitivity analysis and which of the
following best describes scenario analysis?
Description 1: A computer generated analysis based on developing
probability distributions of key variables that are used to drive the
potential outcomes.
Description 2: The process of analyzing the impact of future events
by considering multiple key variables.
Description 3: A technique whereby key financial variables are
changed one at a time and a range of possible outcomes are observed.
Also known as "what-if" analysis.
Sensitivity analysis Scenario analysis
①A. Description 3 Description 2
②B. Description 2 Description 3
③C. Description 1 Description 2
A. ① B. ② C. ③
21. An analyst has gathered the following information about a company.
The total asset turnover is 1.2.
The after-tax profit margin is 10 percent.
The financial leverage multiplier is 1.5.
Given this information, the company' s return on equity is:
A. 9%.
B. 18%.
C. 10%.
22. Selected financial information gathered from the Matador
Corporation follows:
2007
2006
2005
Average debt
$ 792000
$ 800000
$ 820000
Average equity
$ 215000
$ 294000
$ 364000
Return on assets
5.9%
6.6%
7.2%
Quick ratio
0.3
0.5
0.6
Sales
$1650000
$1452000
$1304000
Cost of goods
$ 1345000
$1176000
$1043000
sold
Using only the data presented, which of the following statements is
most correct?
A. Return on equity has improved.
B. Leverage has declined.
C. Liquidity has improved.
23. Johnson Corp. had the following financial results for the fiscal
2004 year:
Current ratio
2.00
Quick ratio
1.25
Current liabilities
$100000
12
Inventory turnover
Gross profit %
25
The only current assets are cash, accounts receivable, and inventory.
The balance in these accounts has remained constant throughout the
year. Johnson's net sales for 2004 were:
A. $ 300000.
B. $ 9O0O00.
C. $1200000.
24. Paragon Company' s operating profits are $100000, interest
expense is $ 25000, and earnings before taxes are $ 75000. What is
Paragon's interest coverage ratio?
A. 1 time.
B. 4 times.
C. 3 times.
25. An analyst has gathered the following information about a firm:
Quick ratio of 0.25
Cash ratio of 0.20
$ 2 million in marketable securities
$10 million in cash
What is their receivables balance?
A. 3 million.
B. 5 million.
C. 2 million.
26. An analyst has gathered the following data about a company:
Average receivables collection period of 95 days
Average inventory processing period of 183 days?
A payables payment period of 274 days
What is their cash conversion cycle?
A. 186 days.
B. 552 days.
C. 4 days.
27. The following data applies to the XTC Company:
Sales = $1000000
Receivable = $ 260000
Net Income = $ 50000
COGS = $ 800000
Total Assets = $ 800000
Payables = $ 600000
Debt/Equity = 200%
Inventory = $ 400000
What is the average collection period, the average inventory
processing period, and the payables payment period respectively for
XTC Company?
Average Average Inventory Payables
Collection Period Processing Period Payments Period
①A. 55 days 195 clays 231 days
②B. 95 days 183 clays 274 days
③C. 45 days 45 days 132 clays
A. ① B. ② C. ③
28. What type of ratio is revenue divided by average working capital
and what type of ratio is average total assets divided by average
total equity? Revenue/Average working capital Average total
assets/Average total equity
①A. Activity ratio Liquidity ratio
②B. Profitability ratio Liquidity ratio
③C. Activity ratio Solvency ratio
A. ① B. ② C. ③
29. Would the following ratios be useful in measuring the
profitability of a firm?
Ratio 1: Cash plus short-term marketable investments plus receivables
divided by average daily cash expenditures.
Ratio 2: Earnings before interest and taxes divided by average total
assets.
Ratio 1 Ratio 2
①A. No No
②B. Yes Yes
③C. No Yes
A. ① B. ② C. ③
30. Given the following information about a firm:
Net Sales = $1000
Cost of Goods Sold = $ 600
Operating Expenses = $ 200
Interest Expenses = $ 50
Tax Rate = 34%
What are the gross and operating profit margins?
Gross Operating Margin Operating Profit Margin
①A. 2O% 15%
②B. 4O% 10%
③C. 40% 20%
A. ① B. ② C. ③
31. Earnings before interest and taxes (EBIT) is also known as:
A. gross profit.
B. net profit.
C. operating profit.
32. A firm' s financial statements reflect the following:
Current liabilities
$ 4000000
Cash
$ 400000
Inventory
$ 1200000
Accounts receivable
Short-term investments
$ 800000
$ 2000000
$ 800000
Long-term investments
Accounts payable
$ 2500000
What are the firm's current ratio, quick ratio, and cash ratio?
Current Ratio Quick Ratio Cash Ratio
①A. 0.8 0.6 1.1
②B. 0.8 1.1 0.6
③C. 1.1 0.8 0.6
A. ① B. ② C. ③
33. Given the following information about a company:
Receivables turnover = 10 times
Payables turnover = 12 times
Inventory turnover = 8 times
What are the average receivables collection period, the average
payables payment period, and
the average inventory processing period respectively?
Average Receivables Average Payables Average Inventory
Collection Period Payment Period Processing Period
①A. 37 30 52
②B. 37 45 46
③C. 37 30 46
A. ① B. ② C. ③
34. An analyst gathered the following data about a company:
Current liabilities are $ 300.
Total debt is $ 900.
Working capital is $ 200.
Capital expenditures are $ 250.
Total assets are $ 2000.
Cash flow from operations is $ 400.
If the company would like a current ratio of 2, they could :
A. decrease current assets by 100 or increase current liabilities by
50.
B. decrease current assets by 100 or decrease current liabilities by
50.
C. increase current assets by 100 or decrease current liabilities by
50.
35. Which of the following statements best describes vertical commonsize analysis and horizontal common-size analysis?
Statement 1 : Each line item is expressed as a percentage of its
base-year amount.
Statement 2: Each line item of the income statement is expressed as a
percentage of revenue and each line item of the balance sheet is
expressed as a percentage of ending total assets.
Statement 3: Each line item is expressed as a percentage of the prior
year' s amount.
Vertical analysis Horizontal analysis
①A. Statement 1 Statement 2
②B. Statement 2 Statement 3
③C. Statement 2 Statement 1
A. ① B. ② C. ③
36. What is the net income of a firm that has a return on equity of
12 percent, an equity muhiplier of 1.5, an asset turnover of 2, and
revenue of $1 million?
A. $ 40000.
B. $ 36000.
C. $ 360000.
(二) 习题答案
1. C.
cash conversion cycle (CCC) = days of sales outstanding + days of
inventory on hand-number of days of payables
number of days of payables =
Since the payables payment period increases by 3.32 days and
receivables days increases by 5, CCC increases by 1.68 days.
2. C.
If the debt ratio (TD/TA) is equal to 40% and the firm has no
preferred stock, the percentage of equity is 1 -0.40, or 60%.
3. A.
cash conversion cycle (CCC) = days of sales outstanding + days of
inventory on hand-number of days of payables, days of sales
outstanding = 365/receivables turnover = 365/11 = 33.18 ; 365/ 12 =
30.42. This means the CCC decreases by 2.76 days.
4. B.
Common-size balance sheet items are all divided by total assets and
common size income statement items are all divided by sales. Thus,
the operating profit margin is the most likely to be presented. The
other choices mix balance sheet and income statement items.
5. A.
ROE = [(S/A)(EBIT/S)-(I/A)] (A/EQ) (1-t)
ROE 2001 = (2×0.3 -0.06)×2×0.8 =0.864
ROE 2002 = (2×0.15 -0.06)×2×0.8 =0.384
Profit margin fell so ROE fell.
6. B.
EPS = ($180000 -$ 4000)/50000 = $ 3.52 per share.
7. B.
Although the finn earned $ 97 on its $ 700 of total shareholder
equity, $ 30 of this was preferred equity. The dividends paid to the
preferred shareholders do not belong to the common equity, so these
must be deducted from income to common shareholders.
8. C.
The upward adjustment to receivables and short-term debt for
receivables sold decrease, the company' s accounts receivable
turnover due to increased accounts receivables but increases leverage
ratios due to increased debt.
9. A.
If equity equals 45% of assets and current liabilities equals 20%,
long-term debt must be 35%. Debt-to-equity ratio = total long-term
debt/total equity =0.35/0.45 = 0.778 = 78%.
Current asset =0.1 +0.15 +0.20 =0.45.
Current ratio = CA/CL =45%/20% =2.25.
10. C.
ROE = EAT/Equity = (0.15)×(800)/(0.45)×(2000) =0.133 or 13.3%.
11. B.
Current ratio = current assets/current liabilities = [ cash +
marketable securities + receivables+inventory ]/current liabilities.
Quick ratio = E cash + marketable securities + receivables ]/current
liabilities
12. C.
The original debt/equity ratio = 35/70 = 0.5. Now adjust the
numerator but not the denominator. Why? You have commitments
(liabilities) but no new equity because (non-current) liabilities and
assets are increased by the same amount. D/E = (35 + 12)/70 =0.671.
13. C.
Cash conversion cycle = ( average receivables collection period) +
( average inventory processing period) - (payables payment period).
14. C.
COGS =0.65×$1000000=$ 650000.
Inventory turnover = CGS/Inventory = $ 650000/$ 450000 = 1.4444.
Average Inventory Processing Period = 365/1.4444 = 252.7 days.
15. A.
Receivables turnover = $ 250000/$150000 = 1.66667.
Collection period = 365/1.66667 = 219 days.
16. A
Interest coverage ratio = EBIT/interest exp. = 115/15 = 7.67, Net
profit margin = net income/ net sales = 60/200 = 0.30.
17. A.
With this information, ROE = (0.1250×1.3008 -0.0732)×1.7571×0.65
=0.1021.
Sustainable growth = ROE ( 1 - dividend payout rate) =0.1021×0.72
=7.35%.
18. C.
ROE = profit margin×asset turnover× A/E =0.08×1.2×1.1 =0.1056.
RR = 1 -0.45 =0.55.
g = ROE×RR =0.1056×0.55 =0.0581.
19. C.
Although manipulation of cash flow can occur, the P/E ratio is easier
to manipulate because earnings are based on the numerous estimates
and judgments of accrual accounting. EPS does not facilitate
comparisons among firms. Two firms may have the same amount of
earnings but the number of shares outstanding may differ
significantly.
20. A.
Sensitivity analysis develops a range of possible outcomes as
specific inputs are changed one at a time. Sensitivity analysis is
also known as "what-if" analysis. Scenario analysis is based on a
specific set of outcomes for multiple variables. Computer generated
analysis, based on develo-ping probability distributions of key
variables, is known as simulation analysis.
21. B.
ROE = Profit margin Total asset turnover financial leverage, ROE =
0.1×1.2×1.5 = 0.18 or 18.0%.
22. A.
Leverage increased as measured by the debt-to-equity ratio from 2.25
in 2005 to 3.68 in 2007. Liquidity worsened as measured by the quick
ratio from 0.6 in 2005 to 0.3 in 2007. Gross profit margin declined
from 20.0% in 2005 to 18.5% in 2007. Return on equity has improved
since 2005. One measure of ROE is ROA×financial leverage. Financial
leverage (assets/equity) can be derived by adding 1 to the debt-toequity ratio. In 2005, ROE was 23.4% [7.2% ROA×(1 +2.25 debt-toequity)]. In 2007, ROE was 27.6% [5.9% ROA×(1 +3.68 debt-to-equity)].
23. C.
The 25% GP indicates that the cost of goods sold is 75% of sales. The
inventory is derived from the difference between current ratio and
the quick ratio. The current ratio indicates that the current assets
are $ 200000 and the quick assets are $125000. The difference
represents the inventory of $ 75000. The inventory turnover is used
to obtain cost of goods sold of $ 900000. The cost of goods sold is
75% of sales, indicating that sales are $1200000.
24. B.
ICR = operating profit/I = EBIT/I = 100000/25000 = 4.
25. A.
Cash ratio = ( cash + marketable securities)/current liabilities
0.20 = ( $10000000 + $ 2000000)/current liabilities
current liabilities = $12000000/0.2 = $ 60000000
Quick ratio = [cash + marketable securities + receivables ] /
$ 60000000
0.25 = [ $10000000 + $ 2000000 + receivables]/$ 60000000
$ 60000000×0.25 = $ 12000000 + receivables
$15000000 = $12000000 + receivables
$15000000 - $12000000 = receivables
$ 3000000 = receivables
26. C.
Cash conversion cycle = ave. receivables collection period + ave.
inventory processing period payables payment period =95 + 183 -274 =4
days
27. B.
Receivables turnover = $1000000/$ 260000 = 3.840.
Average collection period = 365/3.840 = 95.05 or 95 days.
Inventory turnover = $ 800000/$ 400000 = 2.
Average Inventory Processing Period = 365/2 = 183 days.
Payables turnover ratio = $ 800000/$ 600000 = 1.333.
Payables payment period = 365/1.333 = 273.82 or 274 days.
28. C.
Revenue divided by average working capital, also known as the working
capital turnover ratio, is an activity ratio. Average total assets
divided by average total equity, also known as the financial leverage
ratio, is a solvency ratio.
29. C.
(Cash + short - term marketable investments + receivables ) divided
by average daily cash expenditures is known as the defensive interval
ratio. The defensive interval ratio is a liquidity ratio that
measures the firm' s ability to pay cash expenditures in the absence
of external cash flows, but does not directly measure profitability.
EBIT/average total assets is one variation of the return on assets
ratio. Return on assets is a profitability ratio that measures the
efficiency of managing assets and generating profits.
30. C.
Gross profit margin = ( $1000 net sales - $ 600 COGS)/$1000 net sales
=400/1000 =0.4 Operating profit margin = ( $1000 net sales - $ 600
COGS - $ 200 operating expenses)/ $ 1000 net sales = $ 200/$1000 =
0.2
31. C.
Operating profit = earnings before interest and taxes (EBIT)
Gross profit = net sales - COGS
Net income = earnings after taxes = EAT
32. C.
Current ratio=(0.4+2.0+0.8+1.2)/4.0=1.1.
Quick ratio = (0.4 + 2.0 + 0.8 )/4.0 = 0.8.
Cash ratio = (0.4 + 2.0)/4.0 = 0.6.
33. C.
Ave. receivables collection period = 365/10 = 36.5 or 37.
Ave. payables payment period = 365/12 = 30. 4 or 30.
Ave. inventory processing period = 365/8 =45.6 or 46.
34. C.
For the current ratio to equal 2.0, current assets would need to move
to $ 600 (or up by $100) or current liabilities would need to
decrease to $250 or down by $50). Remember that CA - CL = working
capital (500 - 300 = 200).
35. C.
Horizontal common-size analysis involves expressing each line item as
a percentage of the base- year figure. Vertical common-size analysis
involves expressing each line item of the income statement as a
percentage of revenue and each line item of the balance sheet as a
percentage of ending total assets.
36. A.
The traditional DuPont system is given as:
ROE = ( net profit margin) ( asset turnover) ( equity multiplier)
Solving for the net profit margin yields:
0.12=(net profit margin)×(2)×(1.5)
0.04 = ( net profit margin)
Recognizing that the net profit margm is equal to net income/revenue
we can substitute that relationship into the above equation and solve
for net income.
0.04 = net income/revenue = net income/$1000000
$ 40000 = net income.
Financial Reporting Quality : Red Flags and Accounting Warning Signs
( 财务报告质量:预警信息)
(一) 强化习题
1. The "fraud triangle" consist of:
A. incentive or pressure, opportunity, and attitudes or
rationalization.
B. ineffective management, unstable organizational structure, and
deficient internal controls.
C. inappropriate ethical standards, violations of laws or regulations,
and failing to correct known reportable conditions.
2. Accounting warning signs related to the Enron scandal not included:
A. High senior management turnover.
B. Pressure to support the stock price and debt rating.
C. Negative operating cash flow.
3. Which of the following actions is least likely to immediately
increase earnings?
A. Selling more inventory than is purchased or produced.
B. Lowering the salvage value of depreciable assets.
C. A high proportion of management' s compensation depends on the
firm exceeding targets for earnings or the stock price.
4. Risk factors related to opportunities for fraud invlude:
A. The nature of the industry or operations.
B. Threats to the firms' financial stability or profitability.
C. Complex or unstable organizational structure.
5. Which of the following actions was least likely a warning sign of
potential earnings manipulation disclosed in Sunbeam' s financial
statement footnotes?
A. A record level of earnings, yet operating cash flow was negative.
B. Significant use of barter transactions.
C. Receivables were increasing, but bad debt expense was decreasing.
6. Low earnings quality NOT result from
A. selecting accounting principles that misrepresent the economics of
transactions.
B. structuring transactions primarily to achieve a desired effect on
reported earnings.
C. excessive pressure on management and employees to meet internal
targets.
(二) 习题答案
1. A.
The three components of the fraud triangle are incentive or pressure,
opportunity, and attitudes or rationalization.
2. C. Negative operating cash flow is one of accounting warning signs
related to the Sunbeam scandal.
3. C.
Significant threats to the personal wealth of managers and board
membeers due to the firm not meeting its financial targets are a risk
factor related to incentives and pressures. The other choices are
risk factors related to attitudes and rationalization.
4. B.
Threats to the firms' financial stability or profitability is the
risk factors related to incentives and pressures for fraud.
5. B.
Sunbeam was not involved in significant batter transactions. The
other choices are warning signs related to Sunbeam' s accounting
scandal.
6. C.
excessive pressure on management and employees to meet internal
targets is the risk factor related to incentives and pressures for
fraud. The earnings quality can result from selecting accounting
principles that misrepresent the economics of transactions,
structuring transactions primarily to achieve a desired effect on
reported earnings, using aggressive or unrealistic estimates and
assumptions, or exploiting the intent of an accounting standard.
Accounting Shenanigans on the Cash Flow Statement(现金流量表中的会计
舞弊)
(一) 强化习题
1. Over the past two years, a firm reported higher operating cash
flow as a result of securitizing its accounts receivable and from
increasing income tax benefits from employee stock options. The tax
benefits are solely the result of higher tax rates. Should an analyst
conclude that these two sources of operating cash flow are
sustainable?
A. Neither source is sustainable.
B. Both sources are sustainable.
C. Only one of these sources is sustainable.
2. At year-end , Sun company reported cost of goods sold of $ 400
million. Ending accounts payable is $100 million, Assuming there are
365 days in a year, How many days on average it takes Sun company to
pay its suppliers.
A. 80.75 days
B. 91.25 days
C. 102.25 days
3. Which following is least correct?
A. Accelerating operating cash flow by securitizing receivables is
sustainable.
B. Securitizing accounts receivable may affect earning.
C. GAAP is silent on where the gains from securitizations should be
reported in the income statement.
(二) 习题答案
1. A.
Accelerating operating cash flow by securitizing receivables is not
sustainable because the firm only has a limited amount of accounts
receivable. An increase in tax benefits as a result higher of tax
rates is not sustainable. Tax rates could also decrese in the future.
2. B.
days' sales in accounts payable = accounts payable/COGS × number of
days = 100/400 × 365 = 91.25 days.
3. A.
Accelerating operating cash flow by securitizing receivables is not
sustainable because the firm only has a limited amount of accounts
receivable.
Financial Statement Analysis: Applications (财务报表分析:应用)
(一) 强化习题
1. In constructing cash flow forecasts for the medium term, an
analyst should most appropriately:
A. base the forecast on recent cash flow (daily, weekly, monthly)
only.
B. base the forecast on recent average cash flows with adjustment for
trends and seasonality.
C. pay special attention to expected finaneings and capital
expenditures.
2. According to the Management Discussion and Analysis section of
Frankfurt Supply Company' s annual report, Frankfurt recently
decreased the sales prices of its products in order to increase
market share. In addition, Frankfurt recently lowered its
requirements for credit customers and increased the credit limits of
some customers. What is the most likely impact on Frankfurt' s
accounts receivable turnover and inventory turnover as a result of
these changes?
Accounts receivable turnover Inventory turnover
①A. Decrease Decrease
②B. Increase Increase
③C. Decrease Increase
A. ① B. ② C. ③
3. National Scooter Company and Continental Chopper Company are
motorcycle manufacturing companies. National' s target market
includes consumers that are switching to motorcycles because of the
high cost of operating automobiles and they compete on price with
other manufacturers. The average age of National' s customers is 24
years.
Continental manufactures premium motorcycles and aftermarket
accessories and competes on the basis of quality and innovative
design. Continental is in the third year of a five-year project to
develop a customized hybrid motorcycle. Which of the two firms would
most likely report higher gross profit margin, and which firm would
most likely report higher operating expense stated as a percentage of
total cost?
Higher gross profit margin Higher percentage operating expense
①A. Continental National
②B. National Continental
③C. Continental Continental
A. ① B. ② C. ③
4. The following footnote appeared in Crabtree Company' s 20×7
annual report:
"On December 31, 20×7, Crabtree recognized a restructuring charge of
$ 20 million, of which $ 5 million was for severance pay for
employees who will be terminated in 20×8 and $15 million was for
land that became permanently impaired in 20×7. "
Based only on these changes, Crabtree' s net profit margin and fixed
asset turnover ratio in 20× 8 as compared to 20×7 will be?
Net profit margin Fixed asset turnover
①A. Higher Higher
②B. Lower Unchanged
③C. Higher Unchanged
A. ① B. ② C. ③
5. Baetica Company reported the following selected financial
statement data for the year ended December 31, 20×7 :
% of
in millions
Sales
For the year ended December
$ 500
100%
31, 20×7 :
Sales
$ 1200000
Cost of goods sold
Selling and administration
expenses
Depreciation
Net income
(300)
60%
(125)
25%
(50)
10 %
$ 25
5%
＜＞＞
As of December 31, 20×7 :
Non-cash operating working
$100
20%
capital
Cash balance
$ 35
N/A
Non-cash operating working capital = Receivables + Inventory Payables
Baetica expects that sales will increase 20 percent in 20 × 8. In
addition, Baetica expects to make fixed capital expenditures of $ 75
million in 20 × 8. Ignoring taxes, calculate Baetica' s expected
cash balance, as of December 31,20 × 8, assuming all of the commonsize percentages remain constant.
A. $ 80 million.
B. $ 30 million.
C. $ 40 million.
6. Would projecting future financial performance based on past trends
provide a reliable basis for valuation of the following firms? Firm 1:
A rapidly growing company that has made numerous acquisitions and
divestitures. Firm 2: A large, well-diversified, company operating in
a number of mature industries.
Firm 1 Firm 2
①A. No No
②B. No Yes
③C. Yes Yes
A. ① B. ② C. ③
7. Sterling Company is a start-up technology firm that has been
experiencing super-normal growth over the past two years. Selected
common-size financial information follows:
2007 Actual % 2008 Forecast %
of Sales
of Sales
Sales
100 %
100%
Cost of goods sold
60%
55%
Selling and administration expenses
Depreciation expense
25%
10%
20%
10%
5%
15%
Net income
Non-cash operating working capital
20%
25%
Non-cash operating working capital = Receivables + Inventory Payables
For the year ended 2007, Sterling reported sales of $ 20 million.
Sterling expects that sales will increase 50 percent in 2008.
Ignoring income taxes, what is Sterling' s forecast operating cash
flow for the year ended 2008, and is this forecast likely to be as
reliable as a forecast for a large, well diversified, firm operating
in mature industries?
Operating cash flow Reliable forecast
①A. $ 4.0 million Yes
②B. $ 4.0 million No
③C. $ 4.5 million No
A. ① B. ② C. ③
8. When assessing credit risk, which of the following ratios would
best measure a firm' s tolerance for additional debt and a firm' s
operational efficiency?
Ratio 1: Retained cash flow (CFO-dividends) divided by total debt.
Ratio 2: Current assets divided by current liabilities.
Ratio 3: Earnings before interest, taxes, depreciation, and
amortization divided by revenues.
Tolerance for leverage Operational efficiency
①A. Ratio 3 Ratio 1
②B. Ratio 2 Ratio 3
③C. Ratio 1 Ratio 3
A. ① B. ② C. ③
9. Are the following statements about assessing credit risk true or
false?
Statement 1: From a lender' s perspective, higher margin volatility
is for floating-rate debt but not for fixed-rate debt.
Statement 2: Product and geographic diversification should lower
credit risk.
Statement 1 Statement 2
①A. False True
②B. False False
③C. True True
A. ① B. ② C. ③
10. Craig Loomis, a credit analyst with Shawnee Financial Group, has
been asked to assess the operational efficiency of Leuexa Company.
Loomis calculates the following ratios from data gathered from
Lenexa' s annual report:
Total debt $14500000
Revenues $ 35200000
Earnings before interest and taxes $ 6125000
Depreciation and amortization $ 1675000
Interest expense $ 2200000
According to the financial footnotes, Lenexa is a lessee in an
operating lease arrangement for manufacturing equipment. The
discounted present value of the lease payments is $ 6000000 using an
interest rate of 10 percent. The annual payment is $1000000. Only
considering the above data, determine which ratio best measures
operational efficiency and calculate the adjusted measure for the
appropriate analytical treatment of the lease.
Operational efficiency Adjusted measure
①A. EBITDA margin 25.0%
②B. EBITDA margin 17.4%
③C. EBITDA/Interest expense 4.0 times
A. ① B. ② C. ③
11. Falcon Financial Group is considering the purchase of Company A
or Company B based on a low price-to-book investment strategy that
also considers differences in solvency. Selected financial data for
both firms, as of December 31, 20×7, follows:
in millions, except per-share data
Company A
Company B
Current assets
$ 3000
$ 5500
Fixed assets
$ 5700
$ 5500
Total debt
Common equity
$ 2700
$ 6000
$ 3500
$ 7500
500
750
Outstanding shares
Market price per share
$ 26.00
$ 22.50
The finns' financial statement footnotes contain the following:
Company A values its inventory using the first-in, first-out (FIFO)
method.
Company B' s inventory is based on the last-in, first-out ( LIFO )
method. Had Company B used FIFO, its inventory would have been $ 700
million higher.
Company A leases its manufacturing plant. The remaining operating
lease payments total $1600 million. Discounted at 10 percent, the
present value of the remaining payments is $1000 million.
Company B owns its manufacturing plant.
To make the firms financials ratios comparable, calculate the
adjusted price-to-book ratios for Company A and Company B.
Company A Company B
①A. $2.17 $2.81
②B. $1.63 $2.06
③C. $2.17 $2.06
(二) 习题答案
1. B.
Short-term cash flow forecasts can be constructed by projecting
current daily and weekly cash flows, both expenditures and receipts,
into the future. Medium-term forecasts are often based on recent
average cash receipts and expenditures, but can be made using
projection models that take recent trends and seasonality into
account. Longer-term cash flow forecasts should explicitly include
projections for capital expenditures.
Cash flow is not necessarily a fixed proportion of sales. Cash needs
may be higher when sales are low, as in a period prior to a seasonal
increase in orders.
2. C.
Accounts receivable turnover will likely decrease as a result of
offering credit to customers with weak credit histories. Collections
will likely slow down and bad debt expense will likely increase.
Inventory turnover is likely to increase as sales of Frankfurt' s
products increase from more liberal credit terms and the decrease in
price.
3. C.
Continental likely has the highest gross profit margin percentage
since it is selling a customized product and does not compete
primarily based on price. Because of the research and development
costs of developing a new hybrid motorcycle, Continental likely has
the higher operating expense stated as a percentage of total cost.
4. C.
The restructuring charge and asset write-down are non-recurring
transactions; thus, net income will be higher in 20×8, all else
equal. In 20×8, fixed asset turnover will be the same as 20× 7, all
else equal. The asset impairment charge is a one-time charge, so
fixed assets will not be reduced further in 20×8.
5. B.
20×8 sales are expected to be $ 600 million ( $ 500 million 2007
sales×1.2 ) and 20×8 net income is expected to be $ 30 million
( $ 600 million 20×8 sales×5% ). 2008 non-cash operating working
capital is expected to be $120 million ( $ 600 million 20×8
sales×20% ). The change in cash is expected to be - $ 5 million
( $ 30 million 20×8 net income + $ 60 million 20×8 depreciation $ 2.0 million increase in non-cash operating working capital - $ 75
million 20×8 capital expenditures). The 20 x 8 ending balance of
cash is expected to be $ 30 million ( $ 35 million beginning cash
balance- $ 5 million decrease in cash).
6. B.
Using past trends to project future financial performance would be
reliable for a well-diversified firm operating in a number of mature
industries. The diversified firm would likely have relatively
predictable earnings. Using past trends to project future financial
performance would not likely be reliable for the rapidly growing firm
involved in numerous acquisitions and divestitures. Such a firm would
likely have high earnings volatility.
7. B.
2008 sales are expected to be $ 30 million ( $ 20 million 2007
sales×1.5) and 2008 net income is expected to be $4.5 million ( $ 30
million 2008 sales×15% ). 2007 non-cash operating working capital
was $ 4 million ( $ 20 million 2007 sales×20% ) and 2008 non-cash
operating working capital is expected to be $ 7.5 million ( $ 30
million 2008 sales×25 % ). 2008 operating cash flow is expected to
be $ 4 million ( $ 4.5 million 2008 net income + $ 3 million 2008
depreciation - $ 3.5 million increase in non-cash operating working
capital). Forecasts for small firms, start-ups, or firms operating in
volatile industries may be less reliable than a forecast for a large,
well diversified, firm operating in mature industries.
8. C.
A firm's tolerance for additional debt can be measured by its
capacity to repay debt. Retained cash flow divided by total debt is
one of several measures that can be used. Operational efficiency
refers to the firm' s cost structure and can be measured by the
"margin" ratios. EBITDA divided by sales is one version of an
operating margin ratio. The current ratio is a measure of short-term
liquidity.
9. A.
Margin stability is desirable from the lender' s perspective for both
floating-rate and fixed-rate debt. Higher volatility will increase
credit risk. Product and geographic diversification should lower
credit risk as the borrower is less sensitive to adverse events and
conditions.
10. A.
EBITDA margin is a measure of operational efficiency. EBITDA/Interest
expense is a measure of the tolerance for leverage. The adjustment
involves capitalizing the operating lease. As a result, the lease
payment is added back to EBITDA. Adjusted EBITDA margin is 25.0%
[($6125000 EBIT+$1675000 deprecation and amortization + $1000000
lease payment)/ $ 35200000 revenues].
11.C.
Company A should be adjusted for the operating lease liability and
the related assets; however, adding the present value of the lease
payments to both assets and liabilities does not change equity (book
value). Thus, Company A's adjusted P/B ratio is 2.17 =[$ 26
price/( $ 6000 million equity/$ 500 million shares)]. Company B's
inventory should be adjusted back to FIFO by adding the LIFO reserve
to both assets and equity. Thus, Company B' s P/B ratio is 2.06 =
$ 22.50/[ ( $ 7500 million equity + $ 700 million LIFO reserve)/750
million shares].
International Standards Convergence (国际会计准则趋同)
(一) 强化习题
1. Par-Mac Corporation is a joint venture equally controlled by
Parker Company and Macintosh Company. Which method should Macintosh
use to account for its ownership interest in Par-Mac according to U.
S. Generally Accepted Accounting Principles ( U. S. GAAP), and which
method recommended for Parker under International Financial Reporting
Standards (IFRS) ?
U.S. GAAP IFRS
①A. Equity method Proportionate consolidation method
②B. Equity method Consolidation method
③C. Consolidation method Proportionate consolidation method
A. ① B. ② C. ③
2. During 2007, Big 4 Company' s warehouse was totally destroyed by a
tornado. Tornados are very rare in the region where Big 4 is located.
The book value of the warehouse at the time of the tornado was 10
million and Big 4 is self-insured. In addition, on June 30, 2007, Big
4 acquired one of its major suppliers. The fair value of the net
assets acquired by Big 4 was greater than the purchase price.
According to International Financial Reporting Standards, should Big
4 recognize an extraordinary item for tornado damage and should Big 4
recognize negative goodwill on its balance sheet due to the
acquisition?
Extraordinary loss Negative goodwill
①A. No Yes
②B. Yes No
③C. No No
A. ① B. ② C. ③
3. Lincoln Corporation and Continental Incorporated are identical
companies except that Lincoln complies with U. S. Generally Accepted
Accounting Principles and Continental complies with International
Financial Reporting Standards. Assuming an inflationary environment
and stable inventory quantities, which permissible cost flow
assumption will minimize each firm' s pre-tax financial income?
Lincoln Corporation Continental Incorporated
①A. Last-in, first-out Last-in, first-out
②B. First-in, first-out Average cost
③C. Last-in, first-out Average cost
A. ① B. ② C. ③
4. At the beginning of 2007, Thunderbird Company started a 3-year
construction project. The following data relates to the project:
Contract price
$ 100 million
Costs incurred in 2007
$ 50 million
Progress billings
$ 40 miIlion
Collection of progress
$ 37 million
billings
Because of cost overruns, Thunderbird cannot reliably estimate the
total cost of the project. However, Thunderbird expects that its
costs incurred so far are recoverable. What amount of revenue should
Thunderbird recognize for the year ended 2007 under U. S. Generally
Accepted Accounting Principles (U. S. GAAP) and International
Financial Reporting Standards (IFRS)?
U.S. GAAP IFRS
①A. $ 0 $ 50 million
②B. $0 $0
③C. $ 37 million $ 40 million
A. ① B. ② C. ③
5. Are changes in accounting principles and extraordinary items
treated similarly in accordance with U.S. Generally Accepted
Accounting Principles and International Financial Reporting Standards?
Accounting principles Extraordinary items
①A. Yes Yes
②B. No No
③C. Yes No
A. ① B. ② C. ③
6. The correct set of cash flow treatments as they relate to interest
and dividends received according to U. S. generally accepted
accounting principles (GAAP) and International Accounting Standards
(IAS) GAAP is :
U.S. GAAP IAS GAAP
①A. CFI CFO
②B. CFO CFI
③C. CFO CFI or CFO
A. ① B. ② C. ③
7. Three years ago, Ranchero Corporation purchased a patent for a
process used in production, for 3 million. At the end of last year,
Ranchero determined the fair value of the patent was greater than its
book value. No impairment losses have been recognized on the patent.
Assuming Ranchero follows International Financial Reporting Standards,
what is the impact on its total asset turnover ratio and return on
equity of reporting the value of the patent on the balance sheet at
fair value? Total asset turnover Return on equity
①A. Lower Higher
②B. Higher Lower
③C. Lower Lower
8. What would be the impact on a firm' s return on assets ratio (ROA)
of the following independent transactions, assuming ROA is less than
one?
Transaction 1: A firm owned investment securities that were
classified as available-for-sale and there was a recent decrease in
the fair value of these securities.
Transaction 2: A firm owned investment securities that were
classified as available-for-trading and there was recent increase in
the fair value of the securities.
Transaction 1 Transaction 2
①A. Higher Lower
②B. Higher Higher
③C. Lower Higher
9. United Corporation and Intrepid Company are similar firms
operating in the same industry. United follows U.S. Generally
Accepted Accounting Principles and Intrepid follows International
Financial Reporting Standards. At the end of last year, Intrepid had
a higher inventory turnover ratio than Intrepid. Are the following
plausible explanations for the difference?
Explanation 1: United accounts for its inventory using the first-in,
first-out method and Intrepid uses the last-in, first-out method.
Explanation 2: United recognized an upward valuation of inventory
that had been previously written down. Intrepid does not revalue its
inventory upward.
Explanation 1 Explanation 2
①A. No Yes
②B. Yes No
③C. No No
A. ① B. ② C. ③
10. Jennifer Frye, CFA, is comparing the financial performance of a
firm that presents its results under IFRS to that of a firm that
complies with U.S. GAAP. The U.S. firm uses the LIFO method for
inventory accounting and the other firm uses the FIFO method. If Frye
performs the appropriate adjustments to make the U.S. firm' s
financial statements comparable to the firm that reports under IFRS,
her adjustments are least likely to change the firm' s :
A. quick ratio.
B. net profit margin.
C. debt-to-equity ratio.
11. A finn presented the following income statement, which complies
with the 1 standards under
which it must report:
Sales 20535
Cost of goods sold 14525
Operating expenses 2530
Operating income 3480
Income taxes 1220
Income from continuing operations 2260
Extraordinary items, net of tax (525)
Net income 1735
In the next year the firm borrows $10 million to finance construction
of a capital asset. Based on the differences between U.S. GAAP and
International Financial Reporting Standards, this firm :
A. must capitalize the construction interest.
B. must not capitalize the construction interest.
C. may choose to capitalize the construction interest.
(二) 习题答案
1. A.
When a finn that reports under U.S. GAAP has joint control over
another entity, the equity method of accounting is required. Under
IFRS, the proportionate consolidation method is the recommended
method; however, the equity method is also permitted.
2. C.
IFRS does not permit income statement items to be recognized as
"extraordinary" in the income statement. Negative goodwill is not
reported on the balance sheet ; rather, the excess of fair value over
the price paid in an acquisition is recognized as a gain in the
income statement.
3. C.
LIFO will result in the lowest pre-tax financial income and FIFO will
result in the highest pre-tax income. Average cost pre-tax financial
income will fall in the middle. LIFO is allowed under U.S. GAAP but
is not allowed under IFRS. Thus, Lincoln should choose LIFO and
Continental should choose average cost in order to minimize pre-tax
financial income.
4. A.
The completed-contract method must be used under U. S. GAAP since
Thunderbird cannot reliably estimate the project' s cost. Under the
completed-contract method, no revenue is recognized until the project
is complete. Under IFRS, when total cost cannot be reliably estimated,
revenue is recognized to the extent that recovering contract costs is
probable. Since Thunderbird incurred $ 50 million of cost in 2007,
$ 50 million of revenue is recognized.
5. C
Treatment of a change in an accounting principle is similar under U.
S. GAAP and IFRS. Under both standards, a change in accounting
principle is made retrospectively. The treatment of extraordinary
items differs between U.S. GAAP and IFRS. Under U.S. GAAP,
extraordinary items are reported net of tax below income from
continuing operations. IFRS does not permit firms to treat
transactions as extraordinary in the income statement.
6. C.
U.S. GAAP treats interest and dividends received as CFO whereas IAS
GAAP treats interest and dividends received as either CFO or CFI.
7. C.
Increasing the value of the patent on the balance sheet will increase
assets and thus decrease the total asset turnover ratio (higher
denominator). Increasing the value of the patent will also increase
equity, otherwise, the balance sheet equation would not balance.
Increasing equity will result in lower ROE (higher denominator). The
increase in the value of the patent is not recognized in the income
statement unless it is reversing a previously recognized write-down.
8. B.
Available-for-sale securities are reported on the balance sheet at
fair value and any unrealized gains and losses bypass the income
statement and are reported as an adjustment to equity. Thus, a
decrease in fair value will result in a higher ROA ratio (lower
assets). Trading securities are also reported on the balance sheet at
fair value; however, the unrealized gains and losses are recognized
in the income statement. Therefore, an increase in fair value will
result in higher ROA. In this case, both the numerator and
denominator are higher; however, since the ratio is less than one,
the percentage change of the numerator is greater than the percentage
change of the denominator, so the ratio will increase.
9. C.
While the LIFO firm will typically report lower average inventory
(higher inventory turnover), Intrepid cannot be a LIFO firm because
LIFO is not permitted under IFRS. An upward revaluation of inventory
would lower the inventory turnover ratio; however, United cannot
revalue its inventory upward because it follows U. S. GAAP. U.S. GAAP
prohibits upward inventory revaluations (except in very limited
circumstances which are beyond the scope of the Level 1 exam).
10. A.
The analyst should add the U. S. GAAP firm' s LIFO reserve to its
balance sheet inventory and subtract the change in the LIFO reserve
from its cost of goods sold. This adjustment will increase the firm'
s total assets and change its pretax income, income taxes, net income,
and retained earnings ( increasing them if the LIFO reserve increased,
or decreasing them if the LIFO reserve decreased). These adjustments
will change the firm' s debt-to-equity ratio by changing total equity;
net profit margin by changing net income; and cash conversion cycle
by changing inventories. The adjustments do not change current
liabilities or current assets other than inventories, so the quick
ratio is not affected.
11. A.
Construction interest must be capitalized under U.S. GAAP, while
under IFRS the firm canchoose to capitalize construction interest.
Thus, A and C are the two possible correet answers.To choose between
them you need to determine whether this firm prepares its financial
statements under U. S. GAAP or IFRS. The income statement shows an
extraordinary item, which is ermitted under U. S. GAAP but not under
IFRS.
From this we can conclude that the firm reports under U. S. GAAP, and
therefore must capitalize construction interest.