Finance Assignment - Analysis of Income Statements
SuperClass1-Horizontal Analysis of Income Statement and Balance Sheet
Prepare a three-year horizontal analysis of the income statement and balance sheet of your selected company. Discuss the importance and meaning of horizontal analysis. Discuss both the positive and negative trends presented in your company.
2-Ratio Analysis
Calculate the current ratio, quick ratio, cash to current liabilities ratio, over a two-year period. Discuss and interpret the ratios that you calculated. Discuss potential liquidity issues based on your calculations of the current and quick ratios. Are there any factors that could be erroneously influencing the results of the ratios? Discuss liquidity issues of competitive companies within the same industry.
3-Recommendation
Based on your analysis would you recommend an individual invest in this company? What strengths do you see? What risks do you see? It is perfectly acceptable to state that you would recommend avoiding this company as long as you provide support for your position.
4-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
|
| ||
- 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?
5-Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc:
| 19X5
| 19X4
| ||
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
|
| |
- Compute the accounts receivable and inventory turnover ratios for 19X5. Alaska rounds all calculations to two decimal places.
6-Profitability ratios, trading on the equity. Digital Relay has both preferred and common stock outstanding. The company reported the following information for 19X7:
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
|
- Compute the gross profit margin ratio, the return on equity and the return on assets, rounding calculations to two decimal places.
- Does the firm have positive or negative financial leverage? Briefly explain.
7-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
11 years ago
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