211)
Selected balances from a company’s financial statements are shown below. Calculate the following
ratios for 2018:
(a) accounts receivable turnover
(b) inventory turnover
(c) days’ sales uncollected
(d) days’ sales in inventory
(d) profit margin.
(e) return on total assets.
Dec. 31,
Dec. 31,
For the
2018
2017
Year 2018
Accounts receivable
$ 27,000
$ 24,000
Merchandise inventory
25,000
20,000
Total assets
296,000
244,000
Accounts payable
26,000
32,000
Salaries payable
3,000
4,400
Sales (all on credit)
$312,000
Cost of goods sold
165,600
Salaries expense
48,000
Other expenses
75,000
Net income
24,000
Accounts receivable, year-end……………………
Merchandise inventory, beginning-year………….
Merchandise inventory, year-end…………………
Cost of goods sold…………………………………
580,000
212)
The following selected financial information for a company was reported for the current year end.
Calculate the following company ratios:
(a) Accounts receivable turnover.
(b) Inventory turnover.
(c) Days’ sales uncollected
Accounts receivable, beginning-year……………. $170,000
Credit sales………………………………………... 1,000,000
213)
Selected current year end financial information for a company is presented below. Calculate the
following company ratios:
(a) Profit margin.
(b) Total asset turnover.
(c) Return on total assets.
(d) Return on common stockholders’ equity (assume the company has no preferred stock).
Net income……………………………….. $ 325,000
Net sales………………………………….. 4,700,000
Total liabilities, beginning-year………….. 550,000
Total liabilities, end-of–year……………… 530,000
Total stockholders’ equity, beginning-year. 760,000
Total stockholders’ equity, end-of–year….. 745,000
118
214)
Use the following information from the current year financial statements of a company to calculate
the ratios below:
(a) Current ratio.
(b) Accounts receivable turnover. (Assume the prior year’s accounts receivable balance was
$100,000.)
(c) Days’ sales uncollected.
(d) Inventory turnover. (Assume the prior year’s inventory was $50,200.)
(e) Times interest earned ratio.
(f) Return on common stockholders’ equity. (Assume the prior year’s common stock balance was
$480,000 and the retained earnings balance was $128,000.)
(g) Earnings per share (assuming the corporation has a simple capital structure, with only common
stock outstanding).
(h) Price earnings ratio. (Assume the company’s stock is selling for $26 per share.)
(i) Divided yield ratio. (Assume that the company paid $1.25 per share in cash dividends.)
Income statement data:
Sales (all on credit) $1,075,000
Cost of goods sold 575,000
Gross profit on sales $
119
Gross profit on sales
$
500,000
Operating expenses
305,000
Operating income
$ 195,000
Interest expense
20,400
Income before taxes
$ 174,600
Income taxes
74,000
Net income
$ 100,600
Balance sheet data:
Cash
$ 38,400
Accounts receivable
120,000
Inventory
56,700
Prepaid Expenses
24,000
Total current assets
$239,100
Total plant assets
708,900
Total assets
$948,000
Accounts payable
$ 91,200
Interest payable
4,800
Long-term liabilities
204,000
Total liabilities
$300,000
Common stock, $10 par
480,000
Retained earnings
168,000
Total liabilities and equity
$948,000
2018
2017
Assets:
Cash
$ 18,000
$ 22,000
Marketable securities
25,000
0
Accounts receivable
38,000
42,000
Inventory
61,000
52,000
Prepaid insurance
6,000
9,000
Long-term investments
49,000
20,000
Plant assets, net
218,000
225,000
Total assets
$415,000
$370,000
Net income after interest expense and taxes
$ 62,250
Sales (all on credit)
305,000
Cost of goods sold
123,000
215)
Financial information for Sigma Company is presented below. Calculate the following ratios for
2018:
(a) Inventory turnover.
(b) Accounts receivable turnover.
(c) Return on total assets.
(d) Times interest earned.
(e) Total asset turnover.
121
122
Cost of goods sold
123,000
Interest expense
15,600
Income tax expense
27,000
216)
The following summaries from the income statements and balance sheets of Kouris Company and
Brittania, Inc. are presented below.
(1) For both companies for 2018, compute the:
(a) Current ratio
(b) Acid-test ratio
(c) Accounts receivable turnover
(d) Inventory turnover
(e) Days’ sales in inventory
(f) Days’ sales uncollected
Which company do you consider to be the better short-term credit risk? Explain.
(2) For both companies for 2018, compute the:
(a) Profit margin ratio
(b) Return on total assets
(c) Return on common stockholders’ equity
Which company do you consider to have better profitability ratios?
Kouris Company
Consolidated Balance Sheets(in millions)
May 31
2018
2017
Assets
Current assets:
Cash and cash equivalents
$ 634.0
$575.5
Accounts receivable, net of allowance
2,101.1
1,804.1
Inventories
1,514.9
1,373.8
Other current assets
429.9
401.3
Total current assets
4,679.9
4,154.7
Property, plant, and equipment, net
1,620.8
1,614.5
Other long term assets
413.2
670.8
Total assets
$6,713.9
$6,440.0
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt
$ 205.7
$ 55.3
Notes payable
75.4
425.2
Accounts payable
572.7
504.4
Accrued liabilities
1,054.2
765.3
Income taxes payable
107.2
83.0
Total current liabilities
2,015.2
1,833.2
Long term liabilities
708.0
767.8
Total liabilities
2,723.2
2,601.0
Stockholders’ equity:
Common stock
2.8
2.8
Contributed capital in excess of par value
589.0
538.7
Unearned stock compensation
(0.6)
(5.1)
Accumulated other comprehensive loss
(239.7)
(192.4)
Retained earnings
3,639.2
3,495.0
Total stockholders’ equity
3,990.7
3,839.0
Total liabilities and stockholders’ equity
$6,713.9
$6,440.0
Kouris Company
Consolidated Statement of Income
May 31, 2018
123
(in millions)
Revenues
$10,697.0
Cost of sales
6,313.6
Gross profit
4,383.4
Operating expenses
3,137.6
Operating income
1,245.8
Interest expense
42.9
Other revenues and expenses
79.9
Income before tax
1,123.0
Income taxes
382.9
Income before effect of accounting change
740.1
Cumulative effect of accounting change, net of tax
266.1
Net income
$ 474.0
Brittania, Inc.
Consolidated Balance Sheets
Jan. 3,
Jan. 4,
2018
2017
Assets
Current assets:
Cash and cash equivalents
$34.5
$22.2
Accounts receivable, net of allowance
15.5
14.7
Inventories
27.2
28.4
Other current assets
3.5
4.2
Total current assets
80.7
69.5
Property, plant, and equipment, net
5.7
7.0
Other long term assets
1.1
1.5
Total assets
$87.5
$78.0
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$ 8.5
$ 6.6
Accrued liabilities
7.8
5.6
Total current liabilities
16.3
12.2
Long term liabilities
2.5
2.6
Total liabilities
18.8
14.8
Stockholders’ equity:
Common stock 124
2.3
2.3
Common stock
2.3
2.3
Contributed capital in excess of par value
17.8
17.4
Unearned stock compensation
(0.1)
(0.5)
Accumulated other comprehensive loss
(0.9)
(1.3)
Treasury stock
(6.3)
(5.4)
Retained earnings
55.9
50.7
Total stockholders’ equity
68.7
63.2
Total liabilities and stockholders’ equity
$87.5
$78.0
Brittania, Inc.
Consolidated Statement of Income
January 3, 2018
(in millions)
Revenues $133.5
Cost of sales 87.3
Gross profit 46.2
Operating expenses 37.3
Operating income 8.9
Interest expense (0.1)
Other revenues and expenses
0.3
Income before tax
9.1
Income taxes
3.9
Net income
$ 5.2
SHORT ANSWER QUESTIONS
217)
________ applies analytical tools to general-purpose financial statements and related data for
making business decisions.
218)
A common focus of financial statement users in evaluating a company’s performance and financial
condition includes evaluating its (1) ________, (2) ________, and (3) ________.
219)
General-purpose financial statements include the (1)________, (2) ________, (3) ________, (4)
________ and (5) ________.
220)
The four building blocks of financial analysis are (1)________, (2) ________, (3) ________ and
(4) ________.
221)
The standards for comparisons when interpreting measures from financial statement analysis
include (1) ________, (2) ________, (3) ________, and (4) ________.
222)
The comparison of a company’s financial condition and performance across time is known as
________.
223)
The comparison of a company’s financial condition and performance to a base amount is known as
________.
224)
The measurement of key relationships between financial statement items is known as ________.
225)
Three of the most common tools of financial analysis are (1) ________, (2) ________, and (3)
________.
226)
A good financial statement analysis report usually includes the following six sections: (1)
________, (2) ________, (3) ________, (4) ________ (5) ________, and (6) ________.
227)
financial statements are reports where financial amounts are placed side-by-side in
columns on a single statement for analytical purposes.
228)
Trend percentage is calculated by dividing ________ by ________ and multiplying the result by
100.
229)
________ is a method of analysis used to evaluate individual financial statement items or groups of
items in terms of a specific base amount.
230)
The current ratio and acid-test ratio are used to reflect the ________ of a business.
231)
The debt ratio, the equity ratio, pledged assets to secured liabilities, and times interest earned are
all ________ ratios.
232)
The gross margin ratio, return on total assets, and basic earnings per share are all ________ ratios.
233)
________ ratios include the price-earnings ratio and dividend yield.
234) Ratios may be expressed as (1) ________, (2) ________, or (3) ________.
235)
In order to be classified as an extraordinary gain or loss, the item must be both (1) _ and
(2) ________.
236)
The income level most likely to continue into the future and is commonly used in PE ratios and
other market-based measures of performance is the .