Financial Statement Analysis Overview

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the net realizable value of the accounts receivable at the end of the year?

€99,900

If sales increase to $8,030,000, and the average receivables stay the same, what happens to the collection period?

It will increase.

What are the effects of the lease renewal on the company's financial statements?

Increase in cash €84,000, Increase in prepaid rent €84,000.

Decrease in cash €84,000, Decrease in prepaid rent €84,000

Increase in cash €84,000, Decrease in prepaid rent €84,000. (correct)

Decrease in cash €84,000, Increase in prepaid rent €84,000.

What are the financial statement effects of selling goods on account and for cash?

Increase in cash €200,000, Increase in accounts receivable €1.4 million, Increase in retained income €1.6 million. Signup and view all the answers

What are the effects of the lease expiring for 4 months on the company's financial statements?

Increase in rent expense €28,000, Increase in retained income €28,000. Signup and view all the answers

What are the effects of paying taxes on the company's financial statements?

Decrease in retained earnings (tax expense) €30,000, Decrease in cash €20,000, Decrease in accounts payable €10,000. Signup and view all the answers

In the cash flow statement, how are flows affecting long-term liabilities and shareholders' equity, with the exception of income, classified?

Financing activities Signup and view all the answers

What is the value of collections from customers, given that they are $14,000 more than sales?

246,000 Signup and view all the answers

What is the value of payments to suppliers, given that they are $1500 less than the sum of cost of goods sold plus advertising expense?

120,300 Signup and view all the answers

What is the value of payments to employees, given that they are $3,000 more than salary expense?

49,000 Signup and view all the answers

What is the total amount of financing activities, given that the proceeds from the issuance of shares are $94,000, the payment of long-term note payable is $18,000, and the payment of dividends is $9,500?

$121,500 Signup and view all the answers

What is the cash flow from operations, assuming Pizza's statement of cash flows shows a net investing cash outflow of €20,000, a net financing outflow of €10,000, and a net decrease in the cash balance of €30,000?

€10,000 Signup and view all the answers

What is the amount reported in the investing activities section of the statement of cash flows, assuming Tryout Corporation's balance in its land account, which represented one piece of land was $100,000 and the land was sold for $165,000?

65,000 Signup and view all the answers

How is the collection of accounts receivables classified in the statement of cash flows?

Operating Signup and view all the answers

Which of the following is classified in the statement of cash flows as an investing activity?

Purchase of PPE Signup and view all the answers

What is the value of cash flow from investing activities, given that the proceeds from the sale of land are $30,000, the acquisition of PPE is $145,000 and the payment of PPE is $100,000?

-$115,000 Signup and view all the answers

What is the value of cash flow from operating activities using the indirect method, assuming Net income is $29,000, Depreciation expense is $1,000, current assets (other than cash) increased by $12,000, and current liabilities increased by $8,000?

32,000 Signup and view all the answers

What are the payments to employees, given that they are $3,000 more than salary expense?

49,000 Signup and view all the answers

What is the value of cash flows using the direct method: payments to employees?

$49,000 Signup and view all the answers

What is the amount of unrealized gains or losses for a value of, given that a portfolio of available-for-sale equity securities cost $660,100 and had a market value of $955,182 on January 1st, and the market value of the portfolio was $980,160 at January 31st?

$24,978 Signup and view all the answers

What is the amount of unrealized gains or losses for a value of given that a portfolio of trading equity securities cost $660,100 and had a market value of $955,182 on January 1st, and the market value of the portfolio was $980,160 at January 31st?

$24,978 Signup and view all the answers

Assuming each of the equity companies reported under the equity method is 40% owned by Company X, what is the amount of earnings for these companies (unconsolidated affiliates) in the relevant accounting period?

372.5 Signup and view all the answers

What is the value of gross profit as determined by the FIFO method, given the following data, sales Revenue = 300 units at $15 per unit, Purchases = 240 units at $10 per unit, and Beginning Inventory = 120 units at $9 per unit?

3420 Signup and view all the answers

In the consolidated financial statements, what is the dollar amount for total liabilities?

221.7 Signup and view all the answers

What is the dollar amount for the total shareholders' equity in the consolidated financial statements?

40.7 Signup and view all the answers

What is the dollar amount for total assets in the consolidated financial statements?

260.4 Signup and view all the answers

What is the dollar amount for goodwill, given that the Parent Company purchased 100% of the subsidiary company at $14.1 million and the total assets of the parent company were $89.7 and the subsidiary was $170.7?

$14.1 Signup and view all the answers

What is the value of net cash flow generated using the method of indirect method, given that the net income of Brunello Cucinelli is 56295, depreciation is 116275, income tax is 7731, and the adjustments for the change in other non-current liabilities, gains or losses on disposal of non-current assets, write downs of equity investments, and other components without cash movements under IFRS16 are (79), (568), (79), 35, 1452, 10578, (18), (18), (204), (681), (10716), 4175, 6603, 18234, 5522, (1518), (10578), 18, (7781), 7701?

208,176 Signup and view all the answers

Why are gains on disposal of non-current assets deducted from income to derive cash flow from operations?

Gains on disposal of non-current assets are non-cash items. They represent a paper profit that does not lead to an actual inflow of cash. Therefore, to determine the true cash flow from operations, we deduct gains on disposal of non-current assets from income. This is because these gains are not cash receipts but essentially reflect a change in asset value, not cash inflow. Signup and view all the answers

Why are depreciation and amortization added back to income to derive cash flow from operations?

Depreciation and Amortization are non-cash expenses. They are expenses that are recognized on the income statement to account for the decline in value of assets over time, but they do not represent an actual outflow of cash. When calculating cash flow from operations, these non-cash expenses are added back to the net income to arrive at the true cash flow from operations. This is done because these expenses are not actual outlays of cash but rather reflect a reduction in the value of assets over time. Signup and view all the answers

How would you describe the method used to derive the cash flow from operation?

Indirect method Signup and view all the answers

If the company acquired equipment for $260,000 with an estimated life of 5 years or 40,000 hours and an estimated residual value of $20,000 and then sold it for $180,000 in cash, what is the impact on the financial statements?

The sale will result in a loss of $80,000 and increase the cash balance of $180,000. Signup and view all the answers

Study Notes

Financial Statement Analysis - General

Analysis of financial statements is used to evaluate a company's performance, financial position, and future prospects.
Key elements include income statements, balance sheets, and cash flow statements.
These tools provide insights into profitability, liquidity, solvency, and efficiency.

Financial Statement Analysis - Specific Examples

Allowance for Uncollectible Accounts: A company's allowance for uncollectible accounts is determined by assessing the aging of receivables. A percentage of receivables are estimated as uncollectible, increasing the allowance account and reducing the accounts receivable.
Collection Period: The collection period determines how long it takes a company to collect its accounts receivable given total sales over a period divided by the average receivables.
Lease Renewals: A lease renewal results in a cash outflow to pay for the lease, which decreases the company's cash balance in the short term. It often requires an increase in the prepaid rent account.
Sales Transactions: Sales transactions affect cash and/or accounts receivable depending on whether the sale was cash or credit. Total revenues increase in both types of sales.
Tax Expense: Tax expense is recognized on the income statement and represents a cash outflow, reducing retained earnings
Cash Flows from Operating Activities: These activities involve running the business. They include revenue, expenses, and net income adjustments.
Non-cash transactions such as depreciation and amortization are considered when calculating cash flows.

Income Statement Analysis

Revenue: Companies generate revenue through sales of products or services.
Expenses: Costs associated with running the business (e.g., cost of goods sold, salaries, rent).
Net Income: Profit or loss after all expenses.
Additional Data: Data outside the basic financial statements that provide further context for analyzing the income statement.

Cash Flow Statement Analysis

Cash Flows from Operating Activities: These are cash flows from day-to-day business operations (e.g., sales, expenses).
Cash Flows from Investing Activities: These involve investments in long-term assets (e.g., property, plant, equipment).
Cash Flows from Financing Activities: These pertain to sources and uses of long-term capital (e.g., debt, equity, dividends).
Net Increase or Decrease in Cash: The balance at the end of an accounting period, reflecting changes over the period.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

This quiz focuses on the fundamentals of financial statement analysis, including key components such as income statements, balance sheets, and cash flow statements. It also covers specific examples like allowance for uncollectible accounts and collection periods, providing insights into evaluating a company's financial performance.