ACG3173- (Accounting for Decision
Makers) UCF Exam 2 (Ch 4-6) Study
Set Questions Fully Solved.
Horizontal analysis - Answer (New - old)/old = answer as a percent change
• Positive answer implies an increase
• Negative answer implies a decrease
Vertical analysis for income statements - Answer Item given/ net sales
• Final answer is expressed as a percent
Vertical analysis for balance sheets - Answer For assets: Item given (x) / total assets
For liabilities or stockholders equity: Item given (x) / total liabilities + total stockholders equity
• Final answer is expressed as a percent
Working capital - Answer Working capital = current assets - current liabilities
(In the case for this problem, the current assets are: cash, short term investments, net accounts
receivable, and merchandise inventory)
Current ratio - Answer Current ratio = current assets / current liabilities
You want at least a 1:1 ratio, less than 1:1 is not efficient
Accounts receivable turnover ratio and days in receivables - Answer Step 1) Accounts
receivable turnover ratio = net credit sales / average accounts receivable
• You want this number to be greater than 1
Step 2) Number of days in accounts receivables = 365 days / accounts receivable turnover ratio
• Your final answer is in days
, Inventory turnover ratio and number of days in inventory - Answer Step 1) Inventory
turnover ratio = cost of goods sold / average merchandise inventory
Step 2) Number of days in inventory = 365 days / inventory turnover ratio
• Your final answer is in days
Debt ratio - Answer Debt ratio = total liabilities / total assets
• Final answer is expressed as a percent
(For this problem, don't forget that you may need to use the accounting equation ——> assets =
liabilities + stockholders equity)
Debt to equity ratio - Answer Debt to equity ratio = total liabilities/total stockholders equity
Times interest earned ratio - Answer Times interest earned ratio = (income before income
tax + interest expense) / interest expense
• The higher your final answer is the better; it means that the company is more likely to pay the
lender back their money
• Your final answer is a number of times
Earnings per share (EPS) - Answer Earnings per share = (net income - preferred dividends) /
weighted average of outstanding common stock shares
• If the payment of preferred dividends is not given in the problem, you can solve it by
multiplying the number of preferred stock shares x the percent of preferred stock x the par
value of the preferred stock
• There are not always preferred dividends (you may subtract 0 from the numerator)
• You must find the average of OUTSTANDING common stock shares if it is not giving (please do
not forget to use the number of outstanding shares only)
• Your final answer is a dollar value
Asset turnover ratio - Answer Asset turnover ratio = net sales / average total assets
• Your final answer is a number of times
Makers) UCF Exam 2 (Ch 4-6) Study
Set Questions Fully Solved.
Horizontal analysis - Answer (New - old)/old = answer as a percent change
• Positive answer implies an increase
• Negative answer implies a decrease
Vertical analysis for income statements - Answer Item given/ net sales
• Final answer is expressed as a percent
Vertical analysis for balance sheets - Answer For assets: Item given (x) / total assets
For liabilities or stockholders equity: Item given (x) / total liabilities + total stockholders equity
• Final answer is expressed as a percent
Working capital - Answer Working capital = current assets - current liabilities
(In the case for this problem, the current assets are: cash, short term investments, net accounts
receivable, and merchandise inventory)
Current ratio - Answer Current ratio = current assets / current liabilities
You want at least a 1:1 ratio, less than 1:1 is not efficient
Accounts receivable turnover ratio and days in receivables - Answer Step 1) Accounts
receivable turnover ratio = net credit sales / average accounts receivable
• You want this number to be greater than 1
Step 2) Number of days in accounts receivables = 365 days / accounts receivable turnover ratio
• Your final answer is in days
, Inventory turnover ratio and number of days in inventory - Answer Step 1) Inventory
turnover ratio = cost of goods sold / average merchandise inventory
Step 2) Number of days in inventory = 365 days / inventory turnover ratio
• Your final answer is in days
Debt ratio - Answer Debt ratio = total liabilities / total assets
• Final answer is expressed as a percent
(For this problem, don't forget that you may need to use the accounting equation ——> assets =
liabilities + stockholders equity)
Debt to equity ratio - Answer Debt to equity ratio = total liabilities/total stockholders equity
Times interest earned ratio - Answer Times interest earned ratio = (income before income
tax + interest expense) / interest expense
• The higher your final answer is the better; it means that the company is more likely to pay the
lender back their money
• Your final answer is a number of times
Earnings per share (EPS) - Answer Earnings per share = (net income - preferred dividends) /
weighted average of outstanding common stock shares
• If the payment of preferred dividends is not given in the problem, you can solve it by
multiplying the number of preferred stock shares x the percent of preferred stock x the par
value of the preferred stock
• There are not always preferred dividends (you may subtract 0 from the numerator)
• You must find the average of OUTSTANDING common stock shares if it is not giving (please do
not forget to use the number of outstanding shares only)
• Your final answer is a dollar value
Asset turnover ratio - Answer Asset turnover ratio = net sales / average total assets
• Your final answer is a number of times
