CHAPTER 9
FINANCIAL STATEMENT ANALYSIS
SOLUTIONS
1. C is correct. To address this question, we need to first calculate the common-size percentages for the balance sheets in 2003 through 2005.
Once we have these percentages, we can see the changing composition of the balance sheet over time:
2. B is correct.
3. B is correct.
4. B is correct. The most significant benefit of using common-size statements is scaling, whether for a given company or over time. Common-size analysis allows us to make comparisons of investments, financing, and profitability between companies of different sizes and over time for a single company.
5. B is correct. We perform the calculations using the following relationship:
Inserting the given information, we have
and solving for inventory turnover provides a turnover of 7.3 times.
6. B is correct. Compare the formulas for the operating cycle and the net ...
