Brief Exercise 14-2 (20 minutes)

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Brief Exercise 14-2 (20 minutes)"

Transcription

1 Brief Exercise 14-2 (20 minutes) 1. This Year Last Year Sales % 100.0% Cost of goods sold Gross margin Operating expenses: Selling expenses Administrative expenses Total expenses Net operating income Interest expense Net income before taxes % 11.5% 2. The company s major problem seems to be the increase in cost of goods sold, which increased from 58.6% of sales last year to 62.3% of sales this year. This suggests that the company is not passing the increases in costs of its products on to its customers. As a result, cost of goods sold as a percentage of sales has increased and gross margin has decreased. This change has been offset somewhat by reduction in administrative expenses as a percentage of sales. Note that administrative expenses decrease from 10.3% to only 8.9% of sales over the two years. However, this decrease was not enough to completely offset the increased cost of goods sold, so the company s net income decreased as a percentage of sales this year. Solutions Manual, Chapter 14 1

2 Brief Exercise 14-3 (45 minutes) 1. Calculation of the gross margin percentage: Gross margin Gross margin percentage = Sales $27,000 = = 34.2% $79, Calculation of the earnings per share: Net income - Preferred dividends Earnings per share = Average number of common shares outstanding $3,540 - $120 = = $4.28 per share 800 shares 3. Calculation of the price-earnings ratio: Market price per share Price-earnings ratio = Earnings per share $18 = = 4.2 $ Calculation of the dividend payout ratio: Dividends per share Dividend payout ratio = Earnings per share $0.25 = = 5.8% $ Calculation of the dividend yield ratio: Dividends per share Dividend yield ratio = Market price per share $0.25 = = 1.4% $ Introduction to Managerial Accounting, 3rd Edition

3 Brief Exercise 14-3 (continued) 6. Calculation of the return on total assets: Beginning balance, total assets (a)... $45,960 Ending balance, total assets (b)... 50,280 Average total assets [(a) + (b)]/2... $48,120 Return on total assets = Net income + [Interest expense (1 - Tax rate)] Average total assets $3,540 + [$600 (1-0.40)] = = 8.1% $48, Calculation of the return on common stockholders equity: Beginning balance, stockholders equity (a)... $31,660 Ending balance, stockholders equity (b)... 34,880 Average stockholders equity [(a) + (b)]/ ,270 Average preferred stock... 2,000 Average common stockholders equity... $31,270 Return on common = stockholders' equity Net income - Preferred dividends Average common stockholders' equity $3,540 - $120 = = 10.9% $31, Calculation of the book value per share: Book value per share = Total stockholders' equity - Preferred stock Number of common shares outstanding $34,880 - $2,000 = = $41.10 per share 800 shares Solutions Manual, Chapter 14 3

4 Brief Exercise 14-4 (45 minutes) 1. Calculation of working capital: Current assets... $25,080 Current liabilities... 10,400 Working capital... $14, Calculation of the current ratio: Current assets Current ratio = Current liabilities $25,080 = = 2.41 $10, Calculation of the acid-test ratio: Cash + Marketable securities + Current receivables Acid-test ratio = Current liabilities $1,280 + $0 + $12,300 = = 1.31 $10, Calculation of accounts receivable turnover: Beginning balance, accounts receivable (a)... $ 9,100 Ending balance, accounts receivable (b)... 12,300 Average accounts receivable balance [(a) + (b)]/2... $10,700 Accounts receivable = turnover Sales on account Average accounts receivable balance $79,000 = = 7.4 $10, Calculation of the average collection period: 365 days Average collection period = Accounts receivable turnover 365 days = = 49.3 days Introduction to Managerial Accounting, 3rd Edition

5 Brief Exercise 14-4 (continued) 6. Calculation of inventory turnover: Beginning balance, inventory (a)... $8,200 Ending balance, inventory (b)... 9,700 Average inventory balance [(a) + (b)]/2... $8,950 Cost of goods sold Inventory turnover = Average inventory balance $52,000 = = 5.8 $8, Calculation of the average sale period: 365 days Average sale period = Inventory turnover 365 days = = 62.9 days 5.8 Solutions Manual, Chapter 14 5

6 Brief Exercise 14-5 (15 minutes) 1. Calculation of the times interest earned ratio: Earnings before interest Times interest expense and income taxes = earned ratio Interest expense $6,500 = = 10.8 $ Calculation of the debt-to-equity ratio: Total liabilities Debt-to-equity ratio = Stockholders' equity $15,400 = = 0.44 $34,880 6 Introduction to Managerial Accounting, 3rd Edition

7 Exercise 14-8 (45 minutes) 1. Gross margin percentage: Gross margin $127,500 = = 30.4% (rounded) Sales $420, Current ratio: Current assets $115,000 = = 2.30 Current liabilities $50, Acid-test ratio: Quick assets $41,500 = = 0.83 Current liabilities $50, Debt-to-equity ratio: Total liabilities $130,000 = = 0.76 (rounded) Total stockholders' equity $170, Average collection period: Sales on account $420,000 = = 14 Average accounts receivable $30, Average sale period: 365 days = 26 days (rounded) 14 times Cost of goods sold $292,500 = = 4.5 Average inventory $65, Times interest earned: 365 days = 81 days (rounded) 4.5 times Earnings before interest and income taxes $38,000 = = 4.75 Interest expense $8,000 Solutions Manual, Chapter 14 7

8 Exercise 14-8 (continued) 8. Book value per share: Stockholders' equity $170,000 = = $28.33 per share Common shares outstanding 6,000 shares 8 Introduction to Managerial Accounting, 3rd Edition

9 Problem 14-11A (90 minutes) This Year Last Year 1. a. Current assets... $1,520,000 $1,090,000 Current liabilities , ,000 Working capital... $ 720,000 $ 660,000 b. Current assets (a)... $1,520,000 $1,090,000 Current liabilities (b)... $800,000 $430,000 Current ratio (a) (b) c. Quick assets (a)... $550,000 $468,000 Current liabilities (b)... $800,000 $430,000 Acid-test ratio (a) (b) d. Sales on account (a)... $5,000,000 $4,350,000 Average receivables (b)... $390,000 $275,000 Accounts receivables turnover (a) (b) Average collection period: 365 days turnover days 23.1 days e. Cost of goods sold (a)... $3,875,000 $3,450,000 Average inventory (b)... $775,000 $550,000 Inventory turnover (a) (b) Average sales period: 365 days turnover days 58 days f. Total liabilities (a)... $1,400,000 $1,030,000 Stockholders equity (b)... $1,600,000 $1,430,000 Debt-to-equity ratio (a) (b) g. Net income before interest and taxes (a)... $472,000 $352,000 Interest expense (b)... $72,000 $72,000 Times interest earned (a) (b) Solutions Manual, Chapter 14 9

10 Problem 14-11A (continued) 2. a. Sabin Electronics Common-Size Balance Sheets This Year Last Year Current assets: Cash % 6.1 % Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets % % Current liabilities % 17.5 % Bonds payable, 12% Total liabilities Stockholders equity: Preferred stock, $25 par, 8% Common stock, $10 par Retained earnings Total stockholders equity Total liabilities and equity % % 10 Introduction to Managerial Accounting, 3rd Edition

11 Problem 14-11A (continued) b. Sabin Electronics Common-Size Income Statements This Year Last Year Sales % % Cost of goods sold Gross margin Operating expenses Net operating income Interest expense Net income before taxes Income taxes Net income % 4.5 % 3. The following points can be made from the analytical work in parts (1) and (2) above: a. The company has improved its profit margin from last year. This is attributable primarily to an increase in gross margin, which is offset somewhat by a small increase in operating expenses. Overall, the company s income statement looks very good. b. The company s current position has deteriorated significantly since last year. Both the current ratio and the acid-test ratio are well below the industry average and are trending downward. At the present rate, it will soon be impossible for the company to pay its bills as they come due. c. The drain on the cash account seems to be a result mostly of a large buildup in accounts receivable and inventory. Notice that the average age of the receivables has increased by five days since last year, and now is 10 days over the industry average. Many of the company s customers are not taking their discounts, since the average collection period is 28 days and collections terms are 2/10, n/30. This suggests financial weakness on the part of these customers, or sales to customers who are poor credit risks. Solutions Manual, Chapter 14 11

12 Problem 14-11A (continued) d. The inventory turned only five times this year as compared to over six times last year. It takes nearly two weeks longer for the company to turn its inventory than the average for the industry (73 days as compared to 60 days for the industry). This suggests that inventory stocks are higher than they need to be. e. In the authors opinion, the loan should be approved only if the company gets its accounts receivable and inventory back under control. If the accounts receivable collection period is reduced to about 20 days, and if the inventory is pared down enough to reduce the turnover time to about 60 days, enough funds could be released to substantially improve the company s cash position. Then a loan might not even be needed. 12 Introduction to Managerial Accounting, 3rd Edition

13 Problem 14-13A (120 minutes) This Year Last Year 1. a. Net income... $ 840,000 $ 504,000 Add after-tax cost of interest: $360,000 (1 0.30) ,000 $300,000 (1 0.30) ,000 Total (a)... $ 1,092,000 $ 714,000 Average total assets (b)... $15,990,000 $13,920,000 Return on total assets (a) (b) % 5.1% b. Net income... $ 840,000 $ 504,000 Less preferred dividends , ,000 Net income remaining for common (a).. $ 696,000 $ 360,000 Average total stockholders equity... $ 9,360,000 $ 9,084,000 Less average preferred stock... 1,800,000 1,800,000 Average common equity (b)... $ 7,560,000 $ 7,284,000 Return on common equity (a) (b) % 4.9% c. Leverage is positive for this year, since the return on common equity (9.2%) is greater than the return on total assets (6.8%). For last year, leverage is negative since the return on common equity (4.9%) is less than the return on total assets (5.1%). Solutions Manual, Chapter 14 13

14 Problem 14-13A (continued) This Year Last Year 2. a. Net income remaining for common (a)... $696,000 $360,000 Average number of common shares (b)... 75,000 75,000 Earnings per share (a) (b)... $9.28 $4.80 b. Common dividend per share (a)... $2.88 $1.44 Market price per share (b)... $72.00 $40.00 Dividend yield ratio (a) (b) % 3.6% c. Common dividend per share (a)... $2.88 $1.44 Earnings per share (b)... $9.28 $4.80 Dividend payout ratio (a) (b) % 30.0% d. Market price per share (a)... $72.00 $40.00 Earnings per share (b)... $9.28 $4.80 Price-earnings ratio (a) (b) Notice from the data given in the problem that the average P/E ratio for firms in Lydex Company s industry is 10. Since Lydex Company presently has a P/E ratio of only 7.8, investors appear to regard it less well than they do other firms in the industry. That is, investors are willing to pay only 7.8 times current earnings for a share of Lydex Company s stock, as compared to 10 times current earnings for a share of stock for the average firm in the industry. e. Stockholders equity... $9,600,000 $9,120,000 Less preferred stock... 1,800,000 1,800,000 Common stockholders equity (a)... $7,800,000 $7,320,000 Number of common shares (b)... 75,000 75,000 Book value per share (a) (b)... $ $ Introduction to Managerial Accounting, 3rd Edition

15 Problem 14-13A (continued) Notice that market value is below book value for both years for the common stock. This does not necessarily indicate that the stock is selling at a bargain price. Market value reflects investors expectations concerning future earnings, whereas book value is a result of already completed transactions and is geared to the past. f. This Year Last Year Gross margin (a)... $3,150,000 $2,580,000 Sales (b)... $15,750,000 $12,480,000 Gross margin percentage (a) (b) % 20.7% This Year Last Year 3. a. Current assets... $7,800,000 $5,940,000 Current liabilities... 3,900,000 2,760,000 Working capital... $3,900,000 $3,180,000 b. Current assets (a)... $7,800,000 $5,940,000 Current liabilities (b)... $3,900,000 $2,760,000 Current ratio (a) (b) c. Quick assets (a)... $3,660,000 $3,360,000 Current liabilities (b)... $3,900,000 $2,760,000 Acid-test ratio (a) (b) d. Sales on account (a)... $15,750,000 $12,480,000 Average receivables (b)... $2,250,000 $1,680,000 Turnover of receivables (a) (b) Average collection period, 365 days turnover days 49 days Solutions Manual, Chapter 14 15

16 Problem 14-13A (continued) This Year Last Year e. Cost of goods sold (a)... $12,600,000 $9,900,000 Average inventory (b)... $3,150,000 $2,160,000 Inventory turnover (a) (b) Average sale period, 365 days turnover days 79 days f. Total liabilities (a)... $7,500,000 $5,760,000 Stockholders equity (b)... $9,600,000 $9,120,000 Debt-to-equity ratio (a) (b) g. Net income before interest and taxes (a).. $1,560,000 $1,020,000 Interest expense (b)... $360,000 $300,000 Times interest earned (a) (b) Both net income and sales are up from last year. The return on total assets has improved from 5.1% to 6.8%, and the return on common equity is up from 4.9% to 9.2%. But this is the only bright spot. Virtually all other ratios are below the industry average, and, more important, they are trending downward. The deterioration in the gross margin percentage, while not large, is worrisome. Sales and inventories have increased substantially. Ordinarily, this should result in an improvement in the gross margin percentage due to fixed costs being spread over a greater number of units. However, the gross margin percentage has declined. Notice particularly that the average collection period has lengthened to 52 days about three weeks over the industry average. One wonders if the increase in sales was obtained at least in part by extending credit to high-risk customers. Notice also that the debt-to-equity ratio is rising rapidly. If the $3,000,000 loan is granted, the ratio will rise further to What the company probably needs is more equity not more debt. Therefore, the loan should not be approved. The company should be encouraged to issue more common stock to provide a broader equity base on which to operate. 16 Introduction to Managerial Accounting, 3rd Edition

Exercise 17-1 (15 minutes)

Exercise 17-1 (15 minutes) Exercise 17-1 (15 minutes) 1. 2002 2001 Sales... 100.0% 100.0 % Less cost of goods sold... 63.2 60.0 Gross margin... 36.8 40.0 Selling expenses... 18.0 17.5 Administrative expenses... 13.6 14.6 Total expenses...

More information

Chapter. How Well Am I Doing? Financial Statement Analysis

Chapter. How Well Am I Doing? Financial Statement Analysis Chapter 17 How Well Am I Doing? Financial Statement Analysis 17-2 LEARNING OBJECTIVES After studying this chapter, you should be able to: 1. Explain the need for and limitations of financial statement

More information

Income Measurement and Profitability Analysis

Income Measurement and Profitability Analysis PROFITABILITY ANALYSIS The following financial statements for Spencer Company will be used to demonstrate the calculation of the various ratios in profitability analysis. Spencer Company Comparative Balance

More information

Total shares at the end of ten years is 100*(1+5%) 10 =162.9.

Total shares at the end of ten years is 100*(1+5%) 10 =162.9. FCS5510 Sample Homework Problems Unit04 CHAPTER 8 STOCK PROBLEMS 1. An investor buys 100 shares if a $40 stock that pays a annual cash dividend of $2 a share (a 5% dividend yield) and signs up for the

More information

2-8. Identify whether each of the following items increases or decreases cash flow:

2-8. Identify whether each of the following items increases or decreases cash flow: Problems 2-8. Identify whether each of the following items increases or decreases cash flow: Increase in accounts receivable Increase in notes payable Depreciation expense Increase in investments Decrease

More information

Chapter 17: Financial Statement Analysis

Chapter 17: Financial Statement Analysis FIN 301 Class Notes Chapter 17: Financial Statement Analysis INTRODUCTION Financial ratio: is a relationship between different accounting items that tells something about the firm s activities. Purpose

More information

E2-2: Identifying Financing, Investing and Operating Transactions?

E2-2: Identifying Financing, Investing and Operating Transactions? E2-2: Identifying Financing, Investing and Operating Transactions? Listed below are eight transactions. In each case, identify whether the transaction is an example of financing, investing or operating

More information

CHAPTER 13. Financial Analysis: The Big Picture

CHAPTER 13. Financial Analysis: The Big Picture CHAPTER 13 Financial Analysis: The Big Picture Discuss the Need for comparative analysis and identify the tools of financial statement analysis Throughout the book we will rely on three types of comparisons

More information

Financial Statement and Cash Flow Analysis

Financial Statement and Cash Flow Analysis Chapter 2 Financial Statement and Cash Flow Analysis Answers to Concept Review Questions 1. What role do the FASB and SEC play with regard to GAAP? The FASB is a nongovernmental, professional standards

More information

FINANCIAL ACCOUNTING TOPIC: FINANCIAL ANALYSIS

FINANCIAL ACCOUNTING TOPIC: FINANCIAL ANALYSIS SYLLABUS Compulsory part Basic ratio analysis 1. State the general functions of accounting ratios. 2. Calculate and interpret the following ratios: a. working capital/current ratio, quick/liquid/acid test

More information

Financial ratios can be classified according to the information they provide. The following types of ratios frequently are used:

Financial ratios can be classified according to the information they provide. The following types of ratios frequently are used: Financial Ratios Financial ratios are useful indicators of a firm's performance and financial situation. Most ratios can be calculated from information provided by the financial statements. Financial ratios

More information

Financial Statements and Ratios: Notes

Financial Statements and Ratios: Notes Financial Statements and Ratios: Notes 1. Uses of the income statement for evaluation Investors use the income statement to help judge their return on investment and creditors (lenders) use it to help

More information

Financial Statement Analysis: The Big Picture

Financial Statement Analysis: The Big Picture 14-1 CHAPTER 14 Financial Statement Analysis: The Big Picture Managerial Accounting, Fourth Edition 14-2 Study Objectives 1. Discuss the need for comparative analysis. 2. Identify the tools of financial

More information

Ratios Formula Purpose/Use

Ratios Formula Purpose/Use Ratio Review: Formulas, Purpose & Use Word of Caution: Please remember that the significance of any particular ratio in the ratio analysis set is highly dependent upon the industry. For example, Gross

More information

Financial Ratios and Quality Indicators

Financial Ratios and Quality Indicators Financial Ratios and Quality Indicators From U.S. Small Business Administration Online Women's Business Center If you monitor the ratios on a regular basis you'll gain insight into how effectively you

More information

Ratio Analysis CBDC, NB. Presented by ACSBE. February, 2008. Copyright 2007 ACSBE. All Rights Reserved.

Ratio Analysis CBDC, NB. Presented by ACSBE. February, 2008. Copyright 2007 ACSBE. All Rights Reserved. Ratio Analysis CBDC, NB February, 2008 Presented by ACSBE Financial Analysis What is Financial Analysis? What Can Financial Ratios Tell? 7 Categories of Financial Ratios Significance of Using Ratios Industry

More information

140 SU 3: Profitability Analysis and Analytical Issues

140 SU 3: Profitability Analysis and Analytical Issues 140 SU 3: Profitability Analysis and Analytical Issues QUESTIONS 3.1 Profitability Ratios Questions 1 and 2 are based on the following information. The financial statements for Dividendosaurus, Inc., for

More information

Chapter 2 Financial Statements and Analysis

Chapter 2 Financial Statements and Analysis Chapter 2 Financial Statements and Analysis Solutions to Problems P2-1. LG 1: Reviewing Financial Statements Income statement: In this one-year summary of the firm s operations, Technica, Inc. showed a

More information

LEBANESE ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS MANAGERIAL ACCOUNTING

LEBANESE ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS MANAGERIAL ACCOUNTING LEBANESE ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS MANAGERIAL ACCOUNTING JULY 2015 MULTIPLE CHOICE QUESTIONS (37.5%) Choose the correct answer 1. All of the following statements concerning standard costs

More information

Portfolio Management FMI Skema Paris campus Contrôle continu 2 2 April 2014 O. Williams

Portfolio Management FMI Skema Paris campus Contrôle continu 2 2 April 2014 O. Williams Portfolio Management FMI Skema Paris campus Contrôle continu 2 2 April 2014 O. Williams 1. The comparisons with which ratios should be made include the following, except: a. The firm's own past performance

More information

Often stock is split to lower the price per share so it is more accessible to investors. The stock split is not taxable.

Often stock is split to lower the price per share so it is more accessible to investors. The stock split is not taxable. Reading: Chapter 8 Chapter 8. Stock: Introduction 1. Rights of stockholders 2. Cash dividends 3. Stock dividends 4. The stock split 5. Stock repurchases and liquidations 6. Preferred stock 7. Analysis

More information

SOLUTIONS. Learning Goal 30

SOLUTIONS. Learning Goal 30 S1 Learning Goal 30 Multiple Choice 1. d 2. d 3. b 4. a Earnings per share is also used directly for comparing profitability on a per-share basis. 5. d 6. c An airline would have a much greater investment

More information

1) In words, an equity multiplier of 2 means that for every $1:

1) In words, an equity multiplier of 2 means that for every $1: Questions in [New Questions] 1) In words, an equity multiplier of 2 means that for every $1: [A] of debt, a firm has $2 in equity. [B] in equity, a firm has $2 in debt. [C] in assets, a firm has $2 in

More information

What Do Short-Term Liquidity Ratios Measure? What Is Working Capital? How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated?

What Do Short-Term Liquidity Ratios Measure? What Is Working Capital? How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated? What Do Short-Term Liquidity Ratios Measure? What Is Working Capital? HOCK international - 2004 1 HOCK international - 2004 2 How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated? HOCK

More information

Chapter 4. Financial Analysis: Sizing up Firm Performance. Chapter Contents. Learning Objectives

Chapter 4. Financial Analysis: Sizing up Firm Performance. Chapter Contents. Learning Objectives Chapter 4 Financial Analysis: Sizing up Firm Performance Learning Objectives Chapter Contents Principles Used in this Chapter 1.Why Financial Statements are Analyzed 2.Common Size Statements Standardizing

More information

Chapter Review Problems

Chapter Review Problems Chapter Review Problems Unit 17.1 Income statements 1. When revenues exceed expenses, is the result (a) net income or (b) net loss? (a) net income 2. Do income statements reflect profits of a business

More information

ILLUSTRATION 5-1 BALANCE SHEET CLASSIFICATIONS

ILLUSTRATION 5-1 BALANCE SHEET CLASSIFICATIONS ILLUSTRATION 5-1 BALANCE SHEET CLASSIFICATIONS MAJOR BALANCE SHEET CLASSIFICATIONS ASSETS = LIABILITIES + OWNERS' EQUITY Current Assets Long-Term Investments Current Liabilities Long-Term Debt Capital

More information

Chapter 3 Analyzing Financial Statement

Chapter 3 Analyzing Financial Statement Chapter 3 Analyzing Financial Statement Five major areas to analyze. (1) Liquidity Position (2) Management of Assets (3) Management of Debt (4) Company's Profitability (5) Market's View of Company (1)

More information

1. Operating, Investment and Financial Cash Flows

1. Operating, Investment and Financial Cash Flows 1. Operating, Investment and Financial Cash Flows Solutions Problem 1 During 2005, Myears Oil Co. had gross sales of $1 000,000, cost of goods sold of $400,000, and general and selling expenses of $300,000.

More information

Sample Exam Questions and Answers

Sample Exam Questions and Answers 1 Sample Exam Questions and Answers 1. Which of the following statements is most correct? a. Proprietorship is generally not easily and inexpensively formed. b. Partnership has limited liability and limited

More information

Ratio Analysis. A) Liquidity Ratio : - 1) Current ratio = Current asset Current Liability

Ratio Analysis. A) Liquidity Ratio : - 1) Current ratio = Current asset Current Liability A) Liquidity Ratio : - Ratio Analysis 1) Current ratio = Current asset Current Liability 2) Quick ratio or Acid Test ratio = Quick Asset Quick liability Quick Asset = Current Asset Stock Quick Liability

More information

Financial Formulas. 5/2000 Chapter 3 Financial Formulas i

Financial Formulas. 5/2000 Chapter 3 Financial Formulas i Financial Formulas 3 Financial Formulas i In this chapter 1 Formulas Used in Financial Calculations 1 Statements of Changes in Financial Position (Total $) 1 Cash Flow ($ millions) 1 Statements of Changes

More information

RAPID REVIEW Chapter Content

RAPID REVIEW Chapter Content RAPID REVIEW BASIC ACCOUNTING EQUATION (Chapter 2) INVENTORY (Chapters 5 and 6) Basic Equation Assets Owner s Equity Expanded Owner s Owner s Assets Equation = Liabilities Capital Drawing Revenues Debit

More information

Solutions to Problems

Solutions to Problems Solutions to Problems P2-1. P2-2. LG 1: Reviewing basic financial statements Income statement: In this one-year summary of the firm s operations, Technica, Inc. showed a net profit for 2009 and the ability

More information

ICAP GROUP S.A. FINANCIAL RATIOS EXPLANATION

ICAP GROUP S.A. FINANCIAL RATIOS EXPLANATION ICAP GROUP S.A. FINANCIAL RATIOS EXPLANATION OCTOBER 2006 Table of Contents 1. INTRODUCTION... 3 2. FINANCIAL RATIOS FOR COMPANIES (INDUSTRY - COMMERCE - SERVICES) 4 2.1 Profitability Ratios...4 2.2 Viability

More information

TOPIC LEARNING OBJECTIVE

TOPIC LEARNING OBJECTIVE Topic Mapping 1 Transaction Analysis Understand the effect of various types of transactions on the accounting equation, accounting journal and accounting ledger. Concepts and Skills Accounting Equation

More information

Completed Journals Test. What are the advantages of using special journals?

Completed Journals Test. What are the advantages of using special journals? Advanced Accounting 1 Career Opportunities Recognize the different Workbook types of jobs. Define the education required for each. September Special Journals Discounts Bank Statement Journalize entries

More information

PROFESSOR S NAME ACC 255 FALL 2011 COVER SHEET FOR COMPREHENSIVE PROBLEM 2 (CHAPTERS 2, 5-8)

PROFESSOR S NAME ACC 255 FALL 2011 COVER SHEET FOR COMPREHENSIVE PROBLEM 2 (CHAPTERS 2, 5-8) COMPREHENSIVE PROBLEM 2 (CHAPTERS 2, 5-8) Page 137 NAME ANSWER KEY PROFESSOR S NAME SECTION SCORE ACC 255 FALL 2011 COVER SHEET FOR COMPREHENSIVE PROBLEM 2 (CHAPTERS 2, 5-8) INSTRUCTIONS: COMPLETE ALL

More information

* * * Chapter 15 Accounting & Financial Statements. Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

* * * Chapter 15 Accounting & Financial Statements. Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 15 Accounting & Financial Statements Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall Bookkeeping vs. Accounting Bookkeeping Accounting The recording of business transactions.

More information

Credit Analysis 10-1

Credit Analysis 10-1 Credit Analysis 10-1 10-2 Liquidity and Working Capital Basics Liquidity - Ability to convert assets into cash or to obtain cash to meet short-term obligations. Short-term - Conventionally viewed as a

More information

FI3300 Corporation Finance

FI3300 Corporation Finance Learning Objectives FI3300 Corporation Finance Spring Semester 2010 Dr. Isabel Tkatch Assistant Professor of Finance Explain the objectives of financial statement analysis and its benefits for creditors,

More information

a. venture financing typically goes to established large companies with impressive histories

a. venture financing typically goes to established large companies with impressive histories Review of Lecture 6 Quiz and Test Questions 1. BS17 Which statement about a venture capitalist is most accurate? a. venture financing typically goes to established large companies with impressive histories

More information

Is Apple overvalued? An Introduction to Financial Analysis

Is Apple overvalued? An Introduction to Financial Analysis Is overvalued? An Introduction to Financial Analysis The fact that the stock price almost doubled during the last year, was evidence enough for many people to say that investors had gone crazy. Other people

More information

9. Himal Trading has EBIT of Rs 80,000, interest expense of Rs 12,000, and preferred

9. Himal Trading has EBIT of Rs 80,000, interest expense of Rs 12,000, and preferred Set A Fundamentals of Financial Management Model Questions 2072 Program: BBS Time: 3 Hours Part: III F.M.: 100 Code: MGT 215 P.M.: 35 The objective of the model questions is to give an overview of the

More information

Atthapol Charoenkietkrai ACG2021 Section 2

Atthapol Charoenkietkrai ACG2021 Section 2 Atthapol Charoenkietkrai ACG2021 Section 2 Amazon has been in a good position for the last few years and still on a rise. The assets have increased, and the debt has decreased. The company has exponentially

More information

Interpretation of Financial Statements

Interpretation of Financial Statements Interpretation of Financial Statements Author Noel O Brien, Formation 2 Accounting Framework Examiner. An important component of most introductory financial accounting programmes is the analysis and interpretation

More information

Vertical and Horizontal Analysis. Financial Analysis. Lecturer: Dr. Constantinos Adamides

Vertical and Horizontal Analysis. Financial Analysis. Lecturer: Dr. Constantinos Adamides Vertical and Horizontal Analysis Financial Analysis Lecturer: Dr. Constantinos Adamides Horizontal Analysis Comparison of financial information of a single company for two more years Examination of absolute

More information

The Statement of Cash Flows Direct Method

The Statement of Cash Flows Direct Method 23 The Statement of Cash Flows Direct Method DEMONSTRATION PROBLEM The financial statements of Bolero Corporation follow. Copyright Houghton Mifflin Company. All rights reserved. 1 Bolero Corporation Income

More information

Financial Statement Ratio Analysis

Financial Statement Ratio Analysis Management Accounting 319 Financial Statement Ratio Analysis Financial statements as prepared by the accountant are documents containing much valuable information. Some of the information requires little

More information

MBA Financial Management and Markets Spring 2011 Dr. A. Frank Thompson Due: February 28, 2011 Competency Exam 1 Directions: Please answer the

MBA Financial Management and Markets Spring 2011 Dr. A. Frank Thompson Due: February 28, 2011 Competency Exam 1 Directions: Please answer the MBA Financial Management and Markets Spring 2011 Dr. A. Frank Thompson Due: February 28, 2011 Competency Exam 1 Directions: Please answer the following 33 questions designed to test your knowledge of the

More information

Chapter 1 Financial Statement and Cash Flow Analysis

Chapter 1 Financial Statement and Cash Flow Analysis Chapter 1 Financial Statement and Cash Flow Analysis MULTIPLE CHOICE 1. Which of the following items can be found on an income statement? a. Accounts receivable b. Long-term debt c. Sales d. Inventory

More information

Understanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions

Understanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions Understanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions Chapter 3 Interpreting Financial Ratios Concept Check 3.1 1. What are the different motivations that

More information

Fundamental analysis

Fundamental analysis Fundamental analysis 2 June 2016 CERN Finance Club c.laner@cern.ch Introduction Let s cover the two main types of investment analysis used in traditional investing Today: Fundamental analysis Next time:

More information

ACC 255 FINAL EXAM REVIEW PACKET (NEW MATERIAL)

ACC 255 FINAL EXAM REVIEW PACKET (NEW MATERIAL) Page 1 ACC 255 FINAL EXAM REVIEW PACKET (NEW MATERIAL) Complete these sample exam problems/objective questions and check your answers with the solutions at the end of the review file and identify where

More information

Analysis of Financial Statements

Analysis of Financial Statements 23 Analysis of Financial Statements Overview Financial statement creation is a meaningless exercise if the users of the financial statements do not know what the financial statements represent and how

More information

Liquidity analysis: Length of cash cycle

Liquidity analysis: Length of cash cycle 2. Liquidity analysis: Length of cash cycle Operating cycle of a merchandising firm: number of days it takes to sell inventory + number of days until the resulting receivables are converted to cash Acquisition

More information

Principles of Managerial Finance Solution Lawrence J. Gitman CHAPTER 2. Financial Statements And Analysis

Principles of Managerial Finance Solution Lawrence J. Gitman CHAPTER 2. Financial Statements And Analysis Principles of Managerial Finance Solution Lawrence J. Gitman CHAPTER 2 Financial Statements And Analysis INSTRUCTOR S RESOURCES Overview This chapter examines the key components to the stockholders' report:

More information

Frequently Used Formulas for Managing Operations

Frequently Used Formulas for Managing Operations Frequently Used Formulas for Managing Operations Chapter 1 - Hospitality Industry Accounting Revenue Expenses = Profit Assets = Liabilities + Owners Equity Chapter 2 - Accounting Fundamentals Review Assets

More information

Engineering Economics 2013/2014 MISE

Engineering Economics 2013/2014 MISE Problem: JS, Inc. shows the following accounting records for 2011: Sales commissions 15000 Beginning merchandise inventory 16000 Ending merchandise inventory 9000 Sales 185000 Advertising 10000 Purchases

More information

Study Guide - Final Exam Accounting I

Study Guide - Final Exam Accounting I Study Guide - Final Exam Accounting I True/False Indicate whether the sentence or statement is true or false. 1. Entries in a sales journal affect account balances in both the accounts receivable ledger

More information

FSA Note: Summary of Financial Ratio Calculations

FSA Note: Summary of Financial Ratio Calculations FSA Note: Summary of Financial Ratio Calculations This note contains a summary of the more common financial statement ratios. A few points should be noted: Calculations vary in practice; consistency and

More information

Finance Master. Winter 2015/16. Jprof. Narly Dwarkasing University of Bonn, IFS

Finance Master. Winter 2015/16. Jprof. Narly Dwarkasing University of Bonn, IFS Finance Master Winter 2015/16 Jprof. Narly Dwarkasing University of Bonn, IFS Chapter 2 Outline 2.1 Firms Disclosure of Financial Information 2.2 The Balance Sheet 2.3 The Income Statement 2.4 The Statement

More information

Analyzing the Statement of Cash Flows

Analyzing the Statement of Cash Flows Analyzing the Statement of Cash Flows Operating Activities NACM Upstate New York Credit Conference 2015 By Ron Sereika, CCE,CEW NACM 1 Objectives of this Educational Session u Show how the statement of

More information

Accounting - Analysis and Uses of Financial Statements - Final Exam 105 Questions 1. are least interested in financial statement analysis.

Accounting - Analysis and Uses of Financial Statements - Final Exam 105 Questions 1. are least interested in financial statement analysis. Accounting - Analysis and Uses of Financial Statements - Final Exam 105 Questions 1. are least interested in financial statement analysis. A. Auditors Tax lawyers Investors Creditors 2. According SFAC

More information

Computing Liquidity Ratios Current Ratio = CA / CL 708 / 540 = 1.31 times Quick Ratio = (CA Inventory) / CL (708 422) / 540 =.53 times Cash Ratio =

Computing Liquidity Ratios Current Ratio = CA / CL 708 / 540 = 1.31 times Quick Ratio = (CA Inventory) / CL (708 422) / 540 =.53 times Cash Ratio = 1 Computing Liquidity Ratios Current Ratio = CA / CL 708 / 540 = 1.31 times Quick Ratio = (CA Inventory) / CL (708 422) / 540 =.53 times Cash Ratio = Cash / CL 98 / 540 =.18 times 2 Computing Leverage

More information

Integrated Case. 4-25 D Leon Inc., Part II Financial Statement Analysis

Integrated Case. 4-25 D Leon Inc., Part II Financial Statement Analysis Integrated Case 4-25 D Leon Inc., Part II Financial Statement Analysis Part I of this case, presented in Chapter 3, discussed the situation of D Leon Inc., a regional snack foods producer, after an expansion

More information

Chapter 2 Financial Statement and Cash Flow Analysis

Chapter 2 Financial Statement and Cash Flow Analysis Chapter 2 Financial Statement and Cash Flow Analysis MULTIPLE CHOICE 1. Which of the following items can be found on an income statement? a. Accounts receivable b. Long-term debt c. Sales d. Inventory

More information

Gleim / Flesher CMA Review 15th Edition, 1st Printing Part 2 Updates Available December 2010

Gleim / Flesher CMA Review 15th Edition, 1st Printing Part 2 Updates Available December 2010 Page 1 of 3 Gleim / Flesher CMA Review 15th Edition, 1st Printing Part 2 Updates Available December 2010 NOTE: Text that should be deleted from the outline is displayed as struck through with a red background.

More information

Preparing a Successful Financial Plan

Preparing a Successful Financial Plan Topic 9 Preparing a Successful Financial Plan LEARNING OUTCOMES By the end of this topic, you should be able to: 1. Describe the overview of accounting methods; 2. Prepare the three major financial statements

More information

Return on Equity has three ratio components. The three ratios that make up Return on Equity are:

Return on Equity has three ratio components. The three ratios that make up Return on Equity are: Evaluating Financial Performance Chapter 1 Return on Equity Why Use Ratios? It has been said that you must measure what you expect to manage and accomplish. Without measurement, you have no reference to

More information

1. Planning - Establishing organizational goals and deciding how to accomplish them

1. Planning - Establishing organizational goals and deciding how to accomplish them 1 : Understanding the Management Process Basic Management Functions 1. Planning - Establishing organizational goals and deciding how to accomplish them SWOT analysis - The identification and evaluation

More information

ACCOUNTING: TOOLS FOR BUSINESS DECISION MAKING, FIFTH EDITION

ACCOUNTING: TOOLS FOR BUSINESS DECISION MAKING, FIFTH EDITION CHECKLIST OF KEY FIGURES For Exercises and Problems in Kimmel, Weygandt, Kieso FINANCIAL ACCOUNTING: TOOLS FOR BUSINESS DECISION MAKING, FIFTH EDITION Chapter 1 1-4 Net income $8,400. 1-5 Net income $4,576.1.

More information

FINANCIAL STATEMENTS AND RATIO ANALYSIS

FINANCIAL STATEMENTS AND RATIO ANALYSIS In following we will be demonstrating the use of ratios to help examine the health of a firm. Ratios allow managers evaluate to a firm's financial statements in order to point out the strengths and weaknesses

More information

TYPES OF FINANCIAL RATIOS

TYPES OF FINANCIAL RATIOS TYPES OF FINANCIAL RATIOS In the previous articles we discussed how to invest in the stock market and unit trusts. When investing in the stock market an investor should have a clear understanding about

More information

CHAPTER 6. P.6.17 The following are the ratios relating to the activities of National Traders Ltd:

CHAPTER 6. P.6.17 The following are the ratios relating to the activities of National Traders Ltd: CHAPTER 6 Solved Problems P.6.17 The following are the ratios relating to the activities of National Traders Ltd: Debtors velocity (months) 3 Stock velocity (months) 8 Creditors velocity (months) 2 Gross

More information

3,000 3,000 2,910 2,910 3,000 3,000 2,940 2,940

3,000 3,000 2,910 2,910 3,000 3,000 2,940 2,940 1. David Company uses the gross method to record its credit purchases, and it uses the periodic inventory system. On July 21, 20D, the company purchased goods that had an invoice price of $ with terms

More information

Working with Financial Statements

Working with Financial Statements Working with Financial Statements Faculty of Business Administration Lakehead University Spring 2003 May 6, 2003 Outline of the Chapter 3.1 Cash Flow and Financial Statements: A Closer Look 3.2 Standardized

More information

CHAPTER 18. Financial Statement Analysis 1, 2, 3, 5 1 2, 3, 5, 6 2. 3. Explain and apply horizontal analysis. 3, 4, 25 2, 3, 5, 6, 7 1, 4 1, 3, 4

CHAPTER 18. Financial Statement Analysis 1, 2, 3, 5 1 2, 3, 5, 6 2. 3. Explain and apply horizontal analysis. 3, 4, 25 2, 3, 5, 6, 7 1, 4 1, 3, 4 CHAPTER 18 Financial Statement Analysis ASSIGNMENT CLASSIFICATION TABLE Learning Objectives Questions Brief Exercises Do It! Exercises Problems 1. Discuss the need for comparative analysis. 2. Identify

More information

For our curriculum in Grade 12 we are going to use ratios to analyse the information available in the Income statement and the Balance sheet.

For our curriculum in Grade 12 we are going to use ratios to analyse the information available in the Income statement and the Balance sheet. SUBJECT: ACCOUNTING GRADE 12 CHAPTER: COMPANIES LESSON: ANALYSIS AND INTERPRETATION-RATIOS LESSON OVERVIEW (KNOWLEDGE AREAS) LESSON 1. Introduction 2. Analysing of financial statements and its purpose

More information

Chapter-3 Solutions to Problems

Chapter-3 Solutions to Problems Chapter-3 Solutions to Problems P3-1. P3-2. Reviewing basic financial statements LG 1; Basic Income statement: In this one-year summary of the firm s operations, Technica, Inc. showed a net profit for

More information

FINANCIAL RATIO ANALYSIS: PUTTING THE NUMBERS TO WORK

FINANCIAL RATIO ANALYSIS: PUTTING THE NUMBERS TO WORK FINANCIAL RATIO ANALYSIS: PUTTING THE NUMBERS TO WORK By John Bajkowski Financial ratio analysis uses historical financial statements to quantify data that will help give investors a feel for a firm s

More information

Overview of Financial 1-1. Statement Analysis

Overview of Financial 1-1. Statement Analysis Overview of Financial 1-1 Statement Analysis 1-2 Financial Statement Analysis Financial Statement Analysis is an integral and important part of the business analysis. Business analysis? Process of evaluating

More information

CHAPTER 3 LONG-TERM FINANCIAL PLANNING AND GROWTH

CHAPTER 3 LONG-TERM FINANCIAL PLANNING AND GROWTH CHAPTER 3 LONG-TERM FINANCIAL PLANNING AND GROWTH Answers to Concepts Review and Critical Thinking Questions 5. The sustainable growth rate is greater than 20 percent, because at a 20 percent growth rate

More information

1. A set of procedures for controlling cash payments by preparing and approving vouchers before payments are made is known as a voucher system.

1. A set of procedures for controlling cash payments by preparing and approving vouchers before payments are made is known as a voucher system. Accounting II True/False Indicate whether the sentence or statement is true or false. 1. A set of procedures for controlling cash payments by preparing and approving vouchers before payments are made is

More information

Gross Sales (Gross Revenue): the total amount of money received from customers

Gross Sales (Gross Revenue): the total amount of money received from customers Chapter 17 Financial Statements and Ratios 17.1: The Income Statement 17.1.1: Learn the terms used with income statements Income Statement: a financial statement used to summarize all income and expenses

More information

Solutions to Chapter 3. Accounting and Finance

Solutions to Chapter 3. Accounting and Finance Solutions to Chapter 3 Accounting and Finance 1. Sophie s Sofas Liabilities & Assets Shareholders Equity Cash $ 10,000 Accounts payable $ 17,000 Accounts receivable 22,000 Long-term debt 170,000 Inventory

More information

Solutions to Chapter 4. Measuring Corporate Performance

Solutions to Chapter 4. Measuring Corporate Performance Solutions to Chapter 4 Measuring Corporate Performance 1. a. 7,018 Long-term debt ratio 0. 42 7,018 9,724 b. 4,794 7,018 6,178 Total debt ratio 0. 65 27,714 c. 2,566 Times interest earned 3. 75 685 d.

More information

Daniel Burkhardt ACG H1

Daniel Burkhardt ACG H1 Daniel Burkhardt ACG 2021.0H1 Anheuser Busch seems to be doing well. Their financial statements show proof that their net income, earnings per share, and total assets have increased, which are all important

More information

Chapter Twenty-One. Statements. After completing this chapter, you should be able to: analysis, vertical analysis, and ratio analysis.

Chapter Twenty-One. Statements. After completing this chapter, you should be able to: analysis, vertical analysis, and ratio analysis. Chapter Twenty-One 21Analyzing Financial Statements After completing this chapter, you should be able to: 1 Explain the objectives of financial statement analysis. 2 Describe and use the following four

More information

Liquidity and Working Capital Analysis

Liquidity and Working Capital Analysis 8 Lecture Liquidity and Working Capital Analysis Liquidity and Working Capital Operating Activity Additional Liquidity Measures Current assets Current Liabilities Working Capital Current ratio Cash-based

More information

Financial Statements Tutorial

Financial Statements Tutorial Financial Statement Review: Financial Statements Tutorial There are four major financial statements used to communicate information to external users (creditors, investors, suppliers, etc.) - 1. Balance

More information

MASTER BUDGET - EXAMPLE

MASTER BUDGET - EXAMPLE MASTER BUDGET - EXAMPLE Sales IN UNITS for the previous two months (of last quarter), as well as the sales forecast for next quarter are as follows: Sales Budget Units May sales (ACTUAL) 20 June sales

More information

Using Financial Ratios: Interested Parties

Using Financial Ratios: Interested Parties Using Financial Ratios: Interested Parties Ratio analysis involves methods of calculating and interpreting financial ratios to assess a firm s financial condition and performance. It is of interest to

More information

Financial Ratios Used In BSG-Online

Financial Ratios Used In BSG-Online Financial Ratios Used In BSG-Online Profitability Ratios (as reported on pages 2 and 5 of the Footwear Industry Report) Earnings per share (EPS) is defined as net income divided by the number of shares

More information

Financial Management

Financial Management Mock Examination : ACCA Paper F9 Financial Management Session : June 2014 Prepared by : Mr Ian Lim Your Contact Number : I wish to have my script marked by the lecturer and collect the marked script at

More information

FIN 3000. Chapter 4. Financial Analysis. Liuren Wu

FIN 3000. Chapter 4. Financial Analysis. Liuren Wu FIN 3000 Chapter 4 Financial Analysis Liuren Wu Overview 1. Why Do We Analyze Financial Statements 2. Common Size Statements Standardizing Financial Information 3. Using Financial Ratios 4. Selecting a

More information

The Edge Market - Features v 1 WW 1

The Edge Market - Features v 1 WW 1 The Edge Market - Features v 1 WW 1 Key Features of The Edge Market Dashboard The Dashboard offers data & analytics on all listed companies on the Bursa Malaysia and Singapore Exchange. These include the

More information

Practice Review. Stockholders Equity Chapter

Practice Review. Stockholders Equity Chapter Practice Review Stockholders Equity Chapter Use the following information to answer questions 1-3. When Sample Corporation was formed on January 1, the corporate charter provided for 50,000 shares of $20

More information

Chapters 3 and 13 Financial Statement and Cash Flow Analysis

Chapters 3 and 13 Financial Statement and Cash Flow Analysis Chapters 3 and 13 Financial Statement and Cash Flow Analysis Balance Sheet Assets Cash Inventory Accounts Receivable Property Plant Equipment Total Assets Liabilities and Shareholder s Equity Accounts

More information