ACC 205 Financial statement analysis of GE

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Week 5 - Assignment

Financial Ratios Please complete each of the exercises below in a word document. Save the document, and submit to in week using the Assignment Submission button. Week Five Exercise Assignment

Carefully review the Grading Rubric for the criteria that will be used to evaluate your assignment.

Week Five Exercise Assignment

Financial Ratios

1. Liquidity ratios. Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:

	Edison	Stagg	Thornton
Cash	$4,000	$2,500	$1,000
Short-term investments	3,000	2,500	2,000
Accounts receivable	2,000	2,500	3,000
Inventory	1,000	2,500	4,000
Prepaid expenses	800	800	800
Accounts payable	200	200	200
Notes payable: short-term	3,100	3,100	3,100
Accrued payables	300	300	300
Long-term liabilities	3,800	3,800	3,800

a. Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most liquid? Why?

2. Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc:

	20X5	20X4
Net credit sales	$832,000	$760,000
Cost of goods sold	440,000	350,000
Cash, Dec. 31	125,000	110,000
Average Accounts receivable	180,000	140,000
Average Inventory	70,000	50,000
Accounts payable, Dec. 31	115,000	108,000

a. Compute the accounts receivable and inventory turnover ratios for 20X5. Alaska rounds all calculations to two decimal places.

3. Profitability ratios, trading on the equity. Digital Relay has both preferred and common stock outstanding. The company reported the following information for 20X7:

Net sales	$1,500,000
Interest expense	$120,000
Income tax expense	$80,000
Preferred dividends	$25,000
Net income	$130,000
Average assets	$1,100,000
Average common stockholders' equity	$400,000

a. Compute the profit margin ratio, the return on equity and the return on assets, rounding calculations to two decimal places.

b. Does the firm have positive or negative financial leverage? Briefly explain.

4. Horizontal analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow.

20X2	20X1
Current Assets	$76,000	$80,000
Property, Plant, and Equipment (net)	99,000	90,000
Intangibles	25,000	50,000
Current Liabilities	40,800	48,000
Long-Term Liabilities	143,000	160,000
Stockholders’ Equity	16,200	12,000
Net Sales	500,000	500,000
Cost of Goods Sold	332,500	350,000
Operating Expenses	93,500	85,000

Prepare a horizontal analysis for 20X1 and 20X2. Briefly comment on the results of your work.

5. Vertical analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow.

20X2	20X1
Current Assets	$ 76,000	$ 80,000
Property, Plant, and Equipment (net)	99,000	90,000
Intangibles	25,000	50,000
Current Liabilities	40,800	48,000
Long-Term Liabilities	143,000	160,000
Stockholders’ Equity	16,200	12,000
Net Sales	500,000	500,000
Cost of Goods Sold	332,500	350,000
Operating Expenses	93,500	85,000

Prepare a vertical analysis for 20X1 and 20X2. Briefly comment on the results of your work.

6. Ratio computation. The financial statements of the Lone Pine Company follow.

LONE PINE COMPANY Comparative Balance Sheets December 31, 20X2 and 20X1 ($000 Omitted)
20X2	20X1
Assets
Current Assets
Cash and Short-Term Investments	$ 400	$ 600
Accounts Receivable (net)	3,000	2,400
Inventories	2,000	2,200
Total Current Assets	$5,400	$5,200
Property, Plant, and Equipment
Land	$1,700	$ 600
Buildings and Equipment (net)	1,500	1,000
Total Property, Plant, and Equipment	$3,200	$1,600
Total Assets	$8,600	$6,800
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts Payable	$1,800	$1,700
Notes Payable	1,100	1,900
Total Current Liabilities	$2,900	$3,600
Long-Term Liabilities
Bonds Payable	4,100	2,100
Total Liabilities	$7,000	$5,700
Stockholders’ Equity
Common Stock	$ 200	$ 200
Retained Earnings	1,400	900
Total Stockholders’ Equity	$1,600	$1,100
Total Liabilities and Stockholders’ Equity	$8,600	$6,800

LONE PINE COMPANY Statement of Income and Retained Earnings For the Year Ending December 31,20X2 ($000 Omitted)
Net Sales*	$36,000
Less: Cost of Goods Sold	$20,000
Selling Expense	6,000
Administrative Expense	4,000
Interest Expense	400
Income Tax Expense	2,000	32,400
Net Income	$ 3,600
Retained Earnings, Jan. 1	900
$ 4,500
Cash Dividends Declared and Paid	3,100
Retained Earnings, Dec. 31	$ 1,400
*All sales are on account.

Instructions

Compute the following items for Lone Pine Company for 20X2, rounding all calculations to two decimal places when necessary:

a. Quick ratio

b. Current ratio

c. Inventory-turnover ratio

d. Accounts-receivable-turnover ratio

e. Return-on-assets ratio

f. Net-profit-margin ratio

g. Return-on-common-stockholders’ equity

h. Debt-to-total assets

i. Number of times that interest is earned

GRADING RUBRIC Total Possible Score: 8.00

Liquidity Ratios

Total: 1.00

Distinguished - Accurately answers all parts of the problem from the assignment. The submission includes a detailed explanation of how the problem was completed and all applicable supporting computations.

Proficient - Answers all parts of the problem from the assignment with some minor inaccuracies in the calculations. The submission includes an explanation of how the problem was completed and all applicable supporting computations.

Basic - Answers most parts of the problem from the assignment with several inaccuracies in the calculations. The submission includes a brief explanation of how the problem was completed and partial supporting computations.

Below Expectations - Attempts to answer the problem from the assignment; however, the submission is underdeveloped and has many inaccuracies in the calculations. The submission does not include an explanation of how the problem was attempted.