13.3 Learning Objective 13-3
1) Common-size financial statements report only dollar amounts.
2) Which of the following would be most helpful in the comparison of different size companies?
A) Horizontal analysis
B) Comparison of their net incomes
C) Comparison of their working capital balances
D) Preparation of common-size financial statements
3) A financial statement that shows each line item as a percentage of one key item on the statement is referred to as:
A) benchmarking.
B) common-size statement.
C) horizontal analysis.
D) financial ratio analysis.
4) On a common-size balance sheet, each line item is expressed as a percentage of:
A) current assets.
B) operating income.
C) total assets.
D) net income.
5) On a common-size income statement, income taxes expense is expressed as a percentage of:
A) net income.
B) total stockholders' equity.
C) total assets.
D) net sales.
6) You are using a leading competitor, Company B, for benchmarking your company, Company A. When benchmarking, the gross margin of Company A is expressed as a percentage of:
A) the net sales of Companies A and B.
B) Company B's net sales.
C) Company A's net income.
D) Company A's net sales.
7) Walton Company's return on sales for the most recent year was 5%. The industry leader reports a return on sales of 7%. The comparison of Walton Company's return on sales to the industry leader is an example of:
A) benchmarking.
B) gross margin analysis.
C) detail analysis.
D) intercompany analysis.
8) You are the CEO of Company A and you are using an industry leader(Leader Company) for benchmarking. Company A is much smaller than Company B in terms of total assets and total sales revenue. We should compare the:
A) gross profit of Company A to the gross profit of Leader Company
B) net income of Company A to the net income of Leader Company
C) net sales of Company A to the net sales of Leader Company
D) net income to net sales ratio of Company A to net income to net sales ratio of Leader Company
9) Szidon Company reports the following data:
|
Szidon
|
Key Competitor
|
Net income
|
$1,000,000
|
$500,000
|
Net income divided by Net Sales
|
1.1%
|
5.1%
|
Using benchmarking, what can be said about Szidon Company?
A) Szidon is inferior to the key competitor because the key competitor's net income percentage is higher.
B) Szidon is superior to the key competitor because net income is higher.
C) There is not enough information to make any conclusions.
D) There is conflicting information so no conclusions can be reached.