ACC 205 Week 5 Exercise Assignment - Financial ratios
Biowizard901. Liquidity ratios. Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:
Edison Stagg Thornton
Cash | $6,000 | $5,000 | $4,000 |
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 | 530,000 | 400,000 |
Cash, Dec. 31 | 125,000 | 110,000 |
Average accounts receivable | 205,000 | 156,000 |
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 | $1,750,000 |
Interest expense | 120,000 |
Income tax expense | 80,000 |
Preferred dividends | 25,000 |
Net income | 130,000 |
Average assets | 1,200,000 |
Average common stockholders’ equity | 500,000 |
A. Compute the profit margin on sales ratio, the return on equity and the return on assets, rounding calculations to two decimal places.
4. Horizontal analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follows.
20X2 20X1
Current assets | $86,000 | $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 | 153,000 | 160,000 |
Stockholders’ equity | 16,200 | 12,000 |
Net sales | 500,000 | 500,000 |
Cost of goods sold | 322,500 | 350,000 |
Operating expenses | 93,500 | 85,000 |
A. Prepare a horizontal analysis for 20X1 and 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 follows.
20X2 vertical 20X1 vertical
Analysis analysis
Current assets | $86,000 | 17.20% | $80,000 | 16.00% |
Property, plant, and equipment (net) | $99,000 | 19.80% | $90,000 | 18.00% |
Intangibles | $25,000 | 5.00% | $50,000 | 10.00% |
Current liabilities | $40,800 | 8.16% | $48,000 | 9.6% |
Long term liabilities | $153,000 | 30.60% | $160,000 | 32.00% |
Stockholders equity | $16,200 | 3.24% | $12,000 | 2.40% |
Net sales | $500,000 | 100.00% | $500,000 | 100.00% |
Cost of goods sold | $322,500 | 64.50% | $350,000 | 70.00% |
Operating expenses | $93,500 | 18.70% | $85,000 | 17.00% |
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 3,000 2,300
Total current assets $6,400 $5,300
Property, plant, and equipment
Land 1,700 500
Buildings and equipment (net) 1,500 1,000
Total property, plant, and equipment $3,200 $1,500
Total assets $9,600 $6,800
Liabilities and stockholders’ equity
Current liabilities
Accounts payable $2,800 $1,700
Notes payable 1,100 1,900
Total current liabilities $3,900 $3,600
Long term liabilities
Bonds payable 4,100 2,100
Total liabilities $8,000 $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 $9,600 $6,800
LONE PINE COMPANY
Statement of Income and Retained Earnings
For the year ending December 31, 20X2 ($000 Omitted)
Net sales * |
| $36,00 |
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 |
Ending retained earnings |
| 4,500 |
Cash dividends declared and paid |
| 3,100 |
Retained earnings, Dec 31 |
| 1,400 |
*all sales are on account |
|
|
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
10 years ago
Purchase the answer to view it
acc_205_week_5_exercise_assignment_-_financial_ratios.docx
