Question

1. A useful tool in financial statement analysis is the common-size financial statement. What does this tool enable the financial analyst to do?

1. Evaluate financial statements of companies within a given industry of approximately the same value.
2. Determine which companies in the same industry are at approximately the same stage of development.
3. Compare the mix of assets, liabilities, capital, revenue, and expenses within a company over time or between companies within a given industry without respect to relative size.
4. Ascertain the relative potential of companies of similar size in different industries.

2. Synergy’s income statement shows sales of $1,000, cost of goods sold of $400. Pre-interest operating expense $300, and interest expense of $100. Interest coverage ratio of Synergy is close to:

1. 2 times.
2. 3 times.
3. 4 times.
4. 5 times.

3. During September, a firm’s inventory account included the following transactions:

September 1	Inventory	25 units@$4.00
September 14	Purchased	60 units@$4.20
September 20	Sold	40 units@$6.00
September 21	Purchased	30 units @ $4.25
September 25	Sold	40 units @$6.10

Assuming periodic FIFO inventory costing, gross profit for September was:

1. $132
2. $147
3. $153
4. $160

Answer 1

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Answer:

1)

Compare the mix of assets, liabilities, capital, revenue, and expenses within a company over time or between companies within a given industry without respect to relative size.

This is the main objective of comparing financial statements

2)

Calculating the EBIT:-

Particular	Amount in $
Sales	1,000
Less: Costs of Goods Sold	(400)
Less; Pre-Interest Operating Expenses	(300)
EBIT	300

Interest Coverage Ratio = EBIT/Interest expenses

=$300/$100

= 3 times

So, Interest Coverage Ratio of Synergy is 3 times

3)

Option C - 153