CMA Part 2 Section A

Shown below are components of a company’s financial statements.

Sales revenue $ 600,000

Cost of goods sold 300,000

Total assets 2,400,000

Total equity 1,500,000

Net income 120,000

What percentage value would net income be on a common size financial statement?

A financial analyst is reviewing a competitor’s income statements for the past two years.

Year 1                                                    Year 2

Sales                                                                                      £250,000                                             £275,000

Cost of goods sold                                                            155,000                                               160,000

Gross profit                                                                         95,000                                                  115,000

Selling expenses                                                                35,000                                                  40,000

General expenses                                                             45,000                                                 50,000

Operating income before income taxes   15,000                                                  25,000

Taxes related to operations                                          2,500                                                    3,500

Net income                                                                         £ 12,500                                              £ 21,500

The financial analyst is able to conclude that the competitor’s:

A company’s financial statements from the past two years have the following values.

Previous year                                        Current year

Sales revenue                                                       $6,000,000                                            $6,600,000

Net income                                                           500,000                                 540,000

Total assets                                                           10,000,000                                            10,500,000

Inventory                                                               600,000                                 500,000

Using horizontal analysis, what account has the largest percentage change?

In analyzing the short-term liquidity of a company, many analysts prefer to use the quick (or acid test) ratio rather than the current ratio. The primary reason for this preference is that the

The selected financial information of a luggage manufacturer is shown below.

Cash                                       $531,000

Accounts receivable            439,000

Inventory                               300,000

Marketable securities          200,000

Current liabilities 500,000

Long term liabilities             676,000

Based on the information provided, the luggage manufacturer’s quick ratio is

Broomall Corporation has decided to include certain financial ratios in its year-end annual report to

shareholders. Selected information relating to its most recent fiscal year is provided below.

Cash                                                       $10,000

Accounts receivable                            20,000

Prepaid expenses                                 8,000

Inventory                                               42,000

Accounts payable                                15,000

Notes payable (due in 90 days)         25,000

Bonds payable (due in 10 years)       35,000

Net credit sales for year                     220,000

Cost of goods sold                               140,000

Broomall’s working capital at year end is

All of the following are affected when merchandise is purchased on credit except

Davis Retail Inc. has current assets of $7,500,000 and a current ratio of 2.3 times before purchasing $750,000 of merchandise on credit for resale. After this purchase, the current ratio will

Garstka Auto Parts must increase its acid test ratio above the current 0.9 level in order to comply with the terms of a loan agreement. Which one of the following actions is most likely produce the desired results?

The owner of a chain of grocery stores has bought a large supply of mangoes and paid for the fruit with cash. This purchase will adversely impact which one of the following?

When reviewing a credit application, the credit manager should be most concerned with the applicant’s

Both the current ratio and the quick ratio for Spartan Corporation have been slowly decreasing. For the past two years, the current ratio has been 2.3 to 1 and 2.0 to 1. During the same time period, the quick ratio has decreased from 1.2 to 1 to 1.0 to 1. The disparity between the current and quick ratios can be explained by which one of the following?

The acid test ratio shows the ability of a company to pay its current liabilities without having to

All of the following are included when calculating the acid test ratio except

Dedham Corporation has decided to include certain financial ratios in its year-end annual report to shareholders. Selected information relating to its most recent fiscal year is provided below.

Cash                                                                       $10,000

Accounts receivable                                            32,000

Prepaid expenses                                                 8,000

Inventory                                                               30,000

Accounts payable                                                15,000

Notes payable (due in 90 days)                         25,000

Bonds payable (due in 10 years)                       35,000

Dedham’s acid-test ratio at year end is

If a company has a current ratio of 2.1 and pays off a portion of its accounts payable with cash, the current ratio will

An accountant has determined that last year a company had earnings before interest and tax of $750,000, interest expense of $125,000, and an income tax rate of 40%. What was the company’s degree of financial leverage last year?

A summary of the Income Statement of Sahara Company is shown below.

Sales                                                       $15,000,000

Cost of sales                                          9,000,000

Operating expenses                            3,000,000

Interest expense                  800,000

Taxes                                                      880,000

Net income                                           $ 1,320,000

Based on the above information, Sahara’s degree of financial leverage is

A degree of operating leverage of 3 at 5,000 units means that a

Firms with high degrees of financial leverage would be best characterized as having