The comparison of the financial data of a single company for two or more years i
ID: 2435772 • Letter: T
Question
The comparison of the financial data of a single company for two or more years is called horizontal analysis. The percentage analysis of increases and decreases in corresponding items in comparative financial statements is referred to as horizontal analysis. In a common size income statement, net sales are represented by 100%. Financial analysis is normally done only from period, on such values as sales from the first quarter to those of the second quarter rather than the change in cash or accounts receivable from the end of the first quarter to the end of the second quarter. An advantage of the current ratio is that it considers the makeup of the current assets. A balance sheet shows cash, $575,000; marketable securities, $115,000; receivables, $150,000 and 5222,500 of inventories. Current liabilities are $225,000. The current ratio in 2.5 to 1. If the accounts receivable turnover for the current year has decreased when compared with the ratio for the preceding year, there has been an acceleration in the collection of receivables. The tendency of the rate earned on stockholder's equity to vary disproportionately from the rate earned on total assets is referred to as solvency. The dividend yield rate is equal to the dividends per share divided by the par values per share of common stock. When you are interpreting financial ratios, it is useful to compare a company's ratios to same form of standard.Explanation / Answer
(53) The comparison of the financial data of a single company for two or more years is called horizontal analysis.
TRUE
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(54) The percentage analysis of increases and decreases is corresponding items in comparative financial statements is referred to as horizontal analysis.
TRUE
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(55) In a common size income statement, net sales are represented by 100%
TRUE
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(56) Financial analysis is normally done only from period to period, on such values as sales from the first quarter to those of the second quarter rather than the change in cash or accounts receivable from the end of the first quarter to the end of the second aurter.
TRUE
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(57) An advantage of the current ratio is that it considers the makeup of the current assets.
TURE
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(58) A balance sheet shows cash, $75,000, marketable securities $115,000, receivables $150,000 and $222,500 of inventories. Current liabilities are $225, 000. The current ratio is 2.5 to 1.
Current Ratio = [Current Assets / Current Liabilities]
Current Assets = [$75,000 + $115,000 + $150,000 + $222,500]
Current Assets = $562,500
Current Liabilities = $225,000
Current Ratio = [$562,500 / $225,000]
Current Ratio = 2.5: 1
Hence, the answer is “TRUE”
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(59) If the accounts receivable turnover for the current year has decreased when compared with the ratio for the preceding year, there has been acceleration in the collection of receivables.
Accounts receivable turnover ratio = [Annual Credit Sales / Average Accounts
Receivables]
TRUE
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(60) The tendency of the rate earned on stockholder’s equity to vary disproportionately from the rate earned on total assets is referred to as solvency.
FALSE
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(61) The dividend yield rate is equal to the dividends per share divided by the par value per share of common stock.
The dividend yield rate is equal to the dividend per share divided by the price per share (or) Current stock value per share (or) Market value per share.
FALSE
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(62) When you are interpreting financial ratios, it is useful to compare a company’s ratios to some form of standard.
TRUE
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