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

Size: px
Start display at page:

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

Transcription

1 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 dividend reinvestment plan. a. If neither the price of the stock nor the dividend changes, how many shares will the investor have at the end of ten years? The dividend yield is 5 percent (\$2/\$40 = 5 percent). Given that neither the price of the stock nor the dividend changes, the number of shares in the dividend reinvestment plan will grow annually by 5 percent. Total shares at the end of ten years is 100*(1+5%) 10 = The income statement and balance sheet are presented as follows. Please compute various financial ratios. Then compare these results with the industrial averages listed in the textbook on page 298. What strengths and weaknesses are apparent? Income Statement for XYZ for the period ending December 31, 20XX Sales \$90,000 Cost of goods sold 54,000 Gross profit 36,000 Selling and administrative expense 13,500 Operating profit 22,500 Interest expense 4,500. Earnings before taxes 18,000 Taxes 2,880 Earnings available to stockholders \$15,120 Number of shares outstanding 9,000 Earnings per share \$1.51 (To compute the inventory turnover, assume that the prior year s inventory was \$36,000.) Firm XYZ Balance Sheet as of December 31, 20XX Assets Current assets Cash and marketable securities -- \$9,000 Accounts receivable \$28,800 --

2 . Less allowance for doubtful accounts 1,800 27,000 Inventory Finished goods 27, Work in progress 4, Raw materials 6,300 37,800 Total current assets -- \$73,800 Investments -- \$9,000 Long-term assets Plant and equipment 90, Less accumulated depreciation 27,000 63,000 Land -- 9,000 Total long-term assets -- \$72,000 Total assets -- \$ Liabilities & Stockholders Equity Current liabilities -- Accounts payable \$9,000 Accrued wages 9,900 Bank notes 13,500 Accrued interest payable 3,600 Accrued taxes 900 Total current liabilities \$36,900 Long-term debt 13,500 Total liabilities \$50,400 Stockholders equity -- Common stock(\$1 par value; 20,000 shares authorized; 10,000 shares outstanding) \$9,000 Additional paid-in capital 18,000 Retained earnings 77,400 Total stockholders equity \$104,400 Total liabilities and equity \$154,800 a) Current ratio: current assets = \$73,800 = 2 current liabilities \$36,900 b) Quick ratio (acid test): current assets minus inventory = \$36,000 = 0.98 current liabilities \$36,900

3 c) Inventory turnover: sales = \$90,000 = 2.4 average inventory (\$37,800 + \$36,000)/2 or cost of goods sold = \$54,000 = 1.5 average inventory (\$37,800 + \$36,000)/2 d) Receivables turnover: annual credit sales accounts receivable or annual sales = \$90,000 = 3.3 accounts receivable \$27,000 Average collection period: receivables = \$27,000 sales per day \$90,000/360 = 108 days Operating profit margin: earnings before interest and taxes = \$22,500 = 25% sales \$90,000 Net profit margin: earnings after taxes = \$15,120 = 16.8% sales \$90,000 Return on assets: earnings after taxes = \$15,120 = 9.8% total assets \$154,800 Return on equity: earnings after taxes = \$15,120 = 14.5% equity \$104,400 Return on investment: earnings x sales = \$15,120 x \$90,000 = 9.8% sales assets \$90,000 \$154,800 Debt/net worth: debt = \$50,400 = 48.3% equity \$104,400 Debt ratio: debt = \$50,400 = 32.6% total assets \$154,800 Times-interest-earned: earnings before interest and taxes = \$22,500 = 5.0 interest expense \$4,500 Strengths:

4 The current ratio, acid test, and inventory are comparable to the industry averages, and the operating profit margin exceeds the industry average. In general, the firm is performing acceptably. Weaknesses: There are two basic weaknesses. One is the slow collection of accounts receivable which are taking, on the average, 108 days to collect while the industry average is about 75 days. The firm is also using more debt financing than the industry (32.6 percent versus 25 percent for the industry). This increased debt financing may be financing the increased investment in accounts receivable. If the firm can collect its accounts receivable more rapidly, then it will be able to pay off some of its liabilities and thus reduce its debt ratio. The increased usage of debt may also explain why the net profit margin is below the industry average. Since the operating profit margin is comparable to the industry, the lower net profit margin can not be explained by the firm's operations. Either interest expense or higher taxes must be the source of the lower net profit margin. If the lower net profit margin is the result of increased interest expense, then this is probably the result of carrying too many accounts receivable. 5. You have taken the following information from a firm s financial statements. As an investor in the firm s debt instruments, you are concerned with its liquidity position and its use of financial leverage. What conclusions can you draw from this information? Sales \$1,700,000 \$1,500,000 \$1,000,000 Cash 18,000 7,000 5,000 Accounts receivable 152, , ,000 Inventory 200, , ,000 Current liabilities 225, , ,000 Operating income 170, ,000 90,000 Interest expense 27,000 23,000 20,000 Taxes 53,000 45,000 25,000 Net income 90,000 77,000 45,000 Debt 260, , ,000 Equity 330, , ,000

5 An investor in debt instruments is primarily concerned with the firm's capacity to pay the interest and make the principal repayment. Emphasis will be placed on liquidity ratios and times-interest-earned. Emphasis may also be placed on the turnover of current assets, since such turnover generates the cash to make the creditor's payments. Current ratio: 2008: \$5, , ,000\$ = 1.9 \$175, : \$7, , ,000 = 1.5 \$210, : \$18, , ,000 = 1.6 \$225,000 There has been a decline in the current ratio. Quick ratio: 2008: \$5, ,000 = 0.7 \$175, : \$7, ,000 = 0.8 \$175, : \$18, ,000 = 0.8 \$225,000 There has been little change in the quick ratio. Inventory turnover (using average inventory): 2009: \$1,500,000 = 7.7 (\$200, ,000)/2 2010: \$1,700,000 = 8.7 (\$190, ,000)/2 Inventory turnover has increased. Days Sales Outstanding (Average collection period): 2008: \$125,000 = 45 \$1,000,000/ : \$130,000 = 31 \$1,500,000/ : \$152,000 = 32

6 \$1,700,000/360 Days sales outstanding has dramatically improved. Times-interest-earned: 2008: \$90,000/\$20,000 = : \$145,000/\$23,000 = : \$170,000/\$27,000 = 6.3 Times-interest-earned has improved. With the exception of the slight decline in the current ratio, there has been no change that indicates deterioration in the creditor's position. The creditor's position has probably improved. 6. What is the debt/equity ratio for a firm with total debt of \$500,000 and equity of \$200,000? Debt/Net worth: \$500,000/\$200,000 = 2.5 Debt ratio (Debt/Total assets): \$500,000/(\$500,000 + \$200,000) = 0.71 = 71% 7. A firm with sales of \$800,000 has average inventory of \$400,000. The industry average for inventory turnover is four times a year. What would be the reduction in inventory if this firm were to achieve a turnover comparable to the industry average? The firm wants to achieve the industry average given its level of sales. Thus: Industry average = Sales/Average inventory 4 = \$800,000/X X = \$200,000 Since the firm's inventory is \$400,000, the reduction in inventory will be \$400,000 - \$200,000 = \$200, Company A has three debt issues of \$3,000 each. The interest rate on issue A is 4 percent, on B the rate is 6 percent, and on C the rate is 8 percent. Issue B is subordinate to A, and issue C is subordinate to both A and B. The firm s operating income (EBIT) is \$500. What is the timesinterest-earned ratio for issue A and B, and C? Times interest earned = EBIT/Interest Issue A \$500/\$120 = 4.2 Issue B \$500/(\$ ) = 1.7

7 Issue C \$500/(\$ ) =.9 These answers indicate that the firm has insufficient operating income to meet all of its interest expense. If C is subordinated to A and B (and the above calculations are made based on that assumption), the interest payment to C may not be made unless the firm has cash or other sources of funds that may be used to meet the interest payment. 8. If a firm has sales of \$36,000,000 a year, and the average collection period for the industry is 30 days, what should this firm s accounts receivable be if the firm is comparable to the industry? Average collection period = Accounts receivable Sales per day To determine what the firm's accounts receivable should be to be comparable to the industry, solve the following equation: 30 = X/[(\$36,000,000/360)] X = \$3,000, Two firms have sales of \$1 million each. Other financial information is as follows: -- Firm A Firm B EBIT \$150,000 \$150,000 Interest 20,000 75,000 expense Income tax 50,000 30,000 Equity 300, ,000 What is the operating profit margin for Firm A? What is the net profit margin for Firm A? What is the return on equity for Firm B? Operating profit margin = EBIT/Sales Firm A: \$150,000/\$1,000,000 = 15% Net profit margin = Net earnings/sales Firm A: \$80,000/\$1,000,000 = 8% Return on equity = Earnings/Equity Firm B: \$45,000/\$100,000 = 45%

### 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

### 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

### 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

### 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

### 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

### 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

### 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

### 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

### 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

### 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

### 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

### 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

### Finance and Accounting For Non-Financial Managers

Finance and Accounting For Non-Financial Managers Accounting/Finance Recording, classifying, and summarizing financial transactions in terms of dollars and their interpretation 1 Key Accounting Terms Accounting

### 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

### 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,

### Understanding A Firm s Financial Statements

CHAPTER OUTLINE Spotlight: J&S Construction Company (http://www.jsconstruction.com) 1 The Lemonade Kids Financial statement (accounting statements) reports of a firm s financial performance and resources,

### Financial Forecasting (Pro Forma Financial Statements)

Financial Modeling Templates Financial Forecasting (Pro Forma Financial Statements) http://spreadsheetml.com/finance/financialplanningforecasting_proformafinancialstatements.shtml Copyright (c) 2009, ConnectCode

### Ratio Analysis 0.75. Fixed Assets Fixed Assets + Net Working Capital =0.75 Fixed Assets

Ratio Analysis CA Past Years Exam Answer Answer to Q.1: (Nov, 009) Fixed assets ` 18,00,000 Proprietor s funds ` 4,00,000 Note: 1 Ratio of fixed assets to proprietor s funds 0.75 Properietors Fund 0.75

### Chapter 4 Analysis of Financial Statements ANSWERS TO SELECTED END-OF-CHAPTER QUESTIONS

Chapter 4 nalysis of Financial Statements NSWERS TO SELECTED END-OF-CHPTER QUESTIONS 4-1 a. liquidity ratio is a ratio that shows the relationship of a firm s cash and other current assets to its current

### Do you need a Module Chapter to Read Lecture to View Problem Assignment Calculator for the Test? 1 1 1 None No. 2 2 2 Problems from Ch.

Syllabus Financial Statement Analysis 1 Purpose and Learning Objectives This is an introductory course in financial (accounting) statements and their analysis. It reviews the basic financial statements,

### 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

### FINANCIAL MANAGEMENT

100 Arbor Drive, Suite 108 Christiansburg, VA 24073 Voice: 540-381-9333 FAX: 540-381-8319 www.becpas.com Providing Professional Business Advisory & Consulting Services Douglas L. Johnston, II djohnston@becpas.com

### 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

### 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

### CHAPTER 2 ACCOUNTING STATEMENTS, TAXES, AND CASH FLOW

CHAPTER 2 ACCOUNTING STATEMENTS, TAXES, AND CASH FLOW Answers to Concepts Review and Critical Thinking Questions 1. True. Every asset can be converted to cash at some price. However, when we are referring

### 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

### 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

### GBA 521 Midterm Review Dr. Markelevich

GBA 521 Midterm Review Dr. Markelevich Multiple Choice (3 points for each question) Identify the letter of the choice that best completes the statement or answers the question. Wynn Corp. Wynn Corp. reported

### 2. More important - provide a profile of firm s economic characteristics and competitive strategies.

RATIO ANALYSIS-OVERVIEW Ratios: 1. Provide a method of standardization 2. More important - provide a profile of firm s economic characteristics and competitive strategies. Although extremely valuable as

### 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

### Using Accounts to Interpret Performance

Using s to Interpret Performance ing information is used by stakeholders to judge the performance and efficiency of a business Different stakeholders will look for different things: STAKEHOLDER Shareholders

### 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

### Creating a Successful Financial Plan

Creating a Successful Financial Plan Basic Financial Reports Balance Sheet - Estimates the firm s worth on a given date; built on the accounting equation: Assets = Liabilities + Owner s Equity Income Statement

### Authored for ENMU Tutoring Services. By Jessica Huff

By Jessica Huff The standard accounting equation is Assets=Liabilities + Stockholders Equity. Depending on which item someone is looking at will determine what the normal balance is. The normal balance

### 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

### 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

### Statement of Cash Flows

THE CONTENT AND VALUE OF THE STATEMENT OF CASH FLOWS The cash flow statement reconciles beginning and ending cash by presenting the cash receipts and cash disbursements of an enterprise for an accounting

### Key Concepts and Skills. Standardized Financial. Chapter Outline. Ratio Analysis. Categories of Financial Ratios 1-1. Chapter 3

Key Concepts and Skills Chapter 3 Working With Financial Statements Know how to standardize financial statements for comparison purposes Know how to compute and interpret important financial ratios Know

### Reporting and Analyzing Cash Flows QUESTIONS

Chapter 12 Reporting and Analyzing Cash Flows QUESTIONS 1. The purpose of the cash flow statement is to report all major cash receipts (inflows) and cash payments (outflows) during a period. It helps users

### 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

### 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

### The Basic Framework of Budgeting

Master Budgeting 1 The Basic Framework of Budgeting A budget is a detailed quantitative plan for acquiring and using financial and other resources over a specified forthcoming time period. 1. The act of

### 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

### Consolidated Balance Sheets

Consolidated Balance Sheets March 31 2015 2014 2015 Assets: Current assets Cash and cash equivalents 726,888 604,571 \$ 6,057,400 Marketable securities 19,033 16,635 158,608 Notes and accounts receivable:

### 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

### 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

### 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

### 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

### Oklahoma State University Spears School of Business. Financial Statements

Oklahoma State University Spears School of Business Financial Statements Slide 2 Sources of Information Annual reports (10K) & Quarterly reports (10Q) SEC EDGAR Major databases COMPUSTAT(access through

### 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

### Chapter 3 Analysis of Financial Statements ANSWERS TO END-OF-CHAPTER QUESTIONS

Chapter 3 nalysis of Financial Statements NSWERS TO END-OF-CHPTER QUESTIONS 3-1 a. liquidity ratio is a ratio that shows the relationship of a firm s cash and other current assets to its current liabilities.

### 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

### Stock Dividends. Stock Dividends and Stock Splits. Amount of Stock Dividend. Created in 2006 By Michael Worthington Elizabeth City State University

Stock Dividends and Stock Splits Created in 2006 By Michael Worthington Elizabeth City State University Stock Dividends Stock Dividends consist of additional shares of issued to current stockholders (instead

### 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

### 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

### 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

### In this chapter, we build on the basic knowledge of how businesses

03-Seidman.qxd 5/15/04 11:52 AM Page 41 3 An Introduction to Business Financial Statements In this chapter, we build on the basic knowledge of how businesses are financed by looking at how firms organize

### 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

### How To Calculate Financial Leverage Ratio

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

### CH 23 STATEMENT OF CASH FLOWS SELF-STUDY QUESTIONS

C H 2 3, P a g e 1 CH 23 STATEMENT OF CASH FLOWS SELF-STUDY QUESTIONS (note from Dr. N: I have deleted questions for you to omit, but did not renumber the remaining questions) 1. The primary purpose of

### Cash Flow Analysis. 15.511 Corporate Accounting Summer 2004. Professor SP Kothari. Sloan School of Management Massachusetts Institute of Technology

Cash Flow Analysis 15.511 Corporate Accounting Summer 2004 Professor SP Kothari Sloan School of Management Massachusetts Institute of Technology June 16, 2004 1 Statement of Cash Flows Reports operating

### 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

### 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.

### Understanding Financial Information for Bankruptcy Lawyers Understanding Financial Statements

Understanding Financial Information for Bankruptcy Lawyers Understanding Financial Statements In the United States, businesses generally present financial information in the form of financial statements

### 2. More important - provide a profile of firm s economic characteristics and competitive strategies.

RATIO ANALYSIS-OVERVIEW Ratios: 1. Provide a method of standardization 2. More important - provide a profile of firm s economic characteristics and competitive strategies. C Company Sales \$ 100,000 \$ 125,000

### 14. Calculating Total Cash Flows.

14. Calculating Total Cash Flows. Greene Co. shows the following information on its 2008 income statement: Sales = \$138,000 Costs = \$71,500 Other expenses = \$4,100 Depreciation expense = \$10,100 Interest

### Discussion Board Articles Ratio Analysis

Excellence in Financial Management Discussion Board Articles Ratio Analysis Written by: Matt H. Evans, CPA, CMA, CFM All articles can be viewed on the internet at www.exinfm.com/board Ratio Analysis Cash

### 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...

### Financial Reporting and Analysis Chapter 5 Solutions Essentials of Financial Statement Analysis. Exercises

Exercises E5-1. Inventory turnover (AICPA adapted) Financial Reporting and Analysis Chapter 5 Solutions Essentials of Financial Statement Analysis Exercises Inventory turnover = Cost of goods sold Average

### Chapter 6 Statement of Cash Flows

Chapter 6 Statement of Cash Flows The Statement of Cash Flows describes the cash inflows and outflows for the firm based upon three categories of activities. Operating Activities: Generally include transactions

### PROFITCENTS ANALYTICAL PROCEDURES EXPECTED VALUE METHODOLOGY

PROFITCENTS ANALYTICAL PROCEDURES EXPECTED VALUE METHODOLOGY INTRODUCTION This document includes an analysis of the projection methodology used in ProfitCents Analytical Procedures in calculating expectations

### 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

### CASH FLOW STATEMENT (AND FINANCIAL STATEMENT)

CASH FLOW STATEMENT (AND FINANCIAL STATEMENT) - At the most fundamental level, firms do two different things: (i) They generate cash (ii) They spend it. Cash is generated by selling a product, an asset

### 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.

### ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6E

CHAPTER 11 Creating a Successful Financial Plan The Importance of a Financial Plan Financial planning is essential to running a successful business and is not that difficult! Common mistake among business

### 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

### BACKGROUND KNOWLEDGE for Teachers and Students

Pathway: Business, Marketing, and Computer Education Lesson: BMM C6 4: Financial Statements and Reports Common Core State Standards for Mathematics: N.Q.2 Domain: Quantities Cluster: Reason quantitatively

### COMPONENTS OF THE STATEMENT OF CASH FLOWS

ILLUSTRATION 24-1 OPERATING, INVESTING, AND FINANCING ACTIVITIES COMPONENTS OF THE STATEMENT OF CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES + Sales and Service Revenue Received Cost of Sales Paid Selling

### 9901_1. A. 74.19 days B. 151.21 days C. 138.46 days D. 121.07 days E. 84.76 days

1. A stakeholder is: 9901_1 Student: A. a creditor to whom a firm currently owes money. B. any person who has voting rights based on stock ownership of a corporation. C. any person or entity other than

### Ratios from the Statement of Financial Position

For The Year Ended 31 March 2007 Ratios from the Statement of Financial Position Profitability Ratios Return on Sales Ratio (%) This is the difference between what a business takes in and what it spends

### 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

### Accounts Payable are the total amounts your business owes its suppliers for goods and services purchased.

Accounts Payable are the total amounts your business owes its suppliers for goods and services purchased. Accounts Receivable are the total amounts customers owe your business for goods or services sold

### CHAPTER 4. FINANCIAL STATEMENTS

CHAPTER 4. FINANCIAL STATEMENTS Accounting standards require statements that show the financial position, earnings, cash flows, and investment (distribution) by (to) owners. These measurements are reported,

### The Basics of Accounting ACCT 201

The Basics of Accounting ACCT 201 Content Accounting definition Accounting equation Accounting elements Asset, Liabilities, & Equity Transactions Accounts Receivable vs Accounts Payable Retained Earnings

### 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

### 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

### HEALTHCARE FINANCE An Introduction to Accounting and Financial Management. Online Appendix A Financial Analysis Ratios

11/16/11 HEALTHCARE FINANCE An Introduction to Accounting and Financial Management Online Appendix A Financial Analysis Ratios INTRODUCTION In Chapter 17, we indicated that financial ratio analysis is

### Cash is King. cash flow is less likely to be affected

Reading 27: Understanding Cash Flow Statements Relevance of Cash Flow The primary purpose of the statement of cash flows (SCF) is to provide: Info about a firm s cash receipts & cash payments during an

### Chapter Financial Forecasting

Chapter Financial Forecasting PPT 4-2 Chapter 4 - Outline What is Financial Forecasting? 3 Financial Statements for Forecasting Constructing Pro Forma Statements Basis for Sales Projections Steps in a

### Course 1: Evaluating Financial Performance

Excellence in Financial Management Course 1: Evaluating Financial Performance Prepared by: Matt H. Evans, CPA, CMA, CFM This course provides a basic understanding of how to use ratio analysis for evaluating

### National Black Law Journal UCLA

National Black Law Journal UCLA Peer Reviewed Title: An Introduction to Financial Statements for the Practicing Lawyer Journal Issue: National Black Law Journal, 4(1) Author: Edmonds, Thom Publication

### Understanding Financial Statements. For Your Business

Understanding Financial Statements For Your Business Disclaimer The information provided is for informational purposes only, does not constitute legal advice or create an attorney-client relationship,

### ENTREPRENEURIAL FINANCE: Strategy Valuation and Deal Structure

ENTREPRENEURIAL FINANCE: Strategy Valuation and Deal Structure Chapter 9 Valuation Questions and Problems 1. You are considering purchasing shares of DeltaCad Inc. for \$40/share. Your analysis of the company

### This week its Accounting and Beyond

This week its Accounting and Beyond Monday Morning Session Introduction/Accounting Cycle Afternoon Session Tuesday The Balance Sheet Wednesday The Income Statement The Cash Flow Statement Thursday Tools

### UNDERSTANDING FINANCIAL STATEMENTS

UNDERSTANDING FINANCIAL STATEMENTS ITEM 8 It is important that the directors of any business, cooperative or otherwise, understand the financial statements of the business. Without a basic understanding

### CHAPTER 2 FINANCIAL STATEMENTS AND CASH FLOW

CHAPTER 2 FINANCIAL STATEMENTS AND CASH FLOW Solutions to Questions and Problems NOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and