161. Recovery Solutions, Inc.
Comparative financial statements are provided below:
Statements of Income and Retained Earnings for
the Fiscal Years Ended:
June 30, 2015
June 30, 2014
June 30, 2013
Net Sales
$2,004,719
$1,937,021
$1,835,987
Other Income
18,636
17,153
14,614
Total Revenues
2,023,355
1,954,174
1,850,601
Cost of Goods Sold
848,363
847,366
814,483
Selling, General, & Administrative Expenses
733,498
711,610
666,909
Interest Expense
615
958
1,097
Total Costs and Expenses
1,582,476
1,559,934
1,482,489
Income Before Taxes
440,879
394,240
368,112
Income Taxes
136,378
122,614
128,840
Net Income
304,501
271,626
239,272
Retained Earnings at Beginning of Year
1,032,139
898,512
746,541
Dividends Declared
(152,023)
(137,999)
(87,301)
Retained Earnings at End of Year
$1,184,617
$1,032,139
$ 898,512
Per Average Share Amounts:
Net income per share of common stock
$2.63
$2.34
$1.99
Dividends per share of common stock
$1.30
$1.17
$1.02
Balance Sheets
June 30, 2015
June 30, 2014
Cash
$ 214,572
$ 206,627
Short-term Investments
137,112
120,728
Accounts Receivable
194,877
175,967
Inventory
256,108
247,392
Other Current Assets
40,403
46,959
Total Current Assets
843,072
797,673
Long-term Investments
39,888
26,375
Other Non-current Assets
92,183
59,566
Note Receivable
25,522
29,038
Land
36,013
26,298
Buildings and Building Equipment
310,212
277,808
Machinery and Equipment
642,656
566,766
Less: Accumulated Depreciation
(432,050)
(401,279)
Total Assets
$1,557,496
$1,382,245
Accounts Payable
$ 76,691
$ 71,001
Accrued Expenses
67,848
78,378
Dividend Payable
23,222
22,034
Income and Other Taxes Payable
50,865
54,403
Total Current Liabilities
218,626
225,816
Bonds Payable
104,885
101,057
Other Non-current Liabilities
40,312
30,874
Total Liabilities
363,823
357,747
Preferred Stock, no par
3,157
3,157
Common Stock, $1 par
12,339
2,339
Additional Paid-in-Capital
272
226
Retained Earnings
1,184,617
1,032,139
Treasury Stock (common shares at cost)
(6,712)
(13,363)
Total Stockholders’ Equity
1,193,673
1,024,498
Total Liabilities and Stockholders’ Equity
$1,557,496
$1,382,245
Refer to Recovery Solutions, Inc. Calculate the current ratio, quick ratio, and cash ratio for 2015. If you were a banker, would you lend money to
this company under a short-term note payable?
162. Recovery Solutions, Inc.
Comparative financial statements are provided below:
Statements of Income and Retained Earnings for the
Fiscal Years Ended:
June 30, 2015
June 30, 2014
June 30, 2013
Net Sales
$2,004,719
$1,937,021
$1,835,987
Other Income
18,636
17,153
14,614
Total Revenues
2,023,355
1,954,174
1,850,601
Cost of Goods Sold
848,363
847,366
814,483
Selling, General, & Administrative Expenses
733,498
711,610
666,909
Interest Expense
615
958
1,097
Total Costs and Expenses
1,582,476
1,559,934
1,482,489
Income Before Taxes
440,879
394,240
368,112
Income Taxes
136,378
122,614
128,840
Net Income
304,501
271,626
239,272
Retained Earnings at Beginning of Year
1,032,139
898,512
746,541
Dividends Declared
(152,023)
(137,999)
(87,301)
Retained Earnings at End of Year
$1,184,617
$1,032,139
$ 898,512
Per Average Share Amounts:
Net income per share of common stock
$2.63
$2.34
$1.99
Dividends per share of common stock
$1.30
$1.17
$1.02
Balance Sheets
June 30, 2015
June 30, 2014
Cash
$ 214,572
$ 206,627
Short-term Investments
137,112
120,728
Accounts Receivable
194,877
175,967
Inventory
256,108
247,392
Other Current Assets
40,403
46,959
Total Current Assets
843,072
797,673
Long-term Investments
39,888
26,375
Other Non-current Assets
92,183
59,566
Note Receivable
25,522
29,038
Land
36,013
26,298
Buildings and Building Equipment
310,212
277,808
Machinery and Equipment
642,656
566,766
Less: Accumulated Depreciation
(432,050)
(401,279)
Total Assets
$1,557,496
$1,382,245
Accounts Payable
$ 76,691
$ 71,001
Accrued Expenses
67,848
78,378
Dividend Payable
23,222
22,034
Income and Other Taxes Payable
50,865
54,403
Total Current Liabilities
218,626
225,816
Bonds Payable
104,885
101,057
Other Non-current Liabilities
40,312
30,874
Total Liabilities
363,823
357,747
Preferred Stock, no par
3,157
3,157
Common Stock, $1 par
12,339
2,339
Additional Paid-in-Capital
272
226
Retained Earnings
1,184,617
1,032,139
Treasury Stock (common shares at cost)
(6,712)
(13,363)
Total Stockholders’ Equity
1,193,673
1,024,498
Total Liabilities and Stockholders’ Equity
$1,557,496
$1,382,245
Refer to Recovery Solutions, Inc. Assuming the company’s cash flow from operations for 2015 is $323,847, calculate the operating cash flow ratio
for 2015. Is the company in danger of liquidity problems?
163. Recovery Solutions, Inc.
Comparative financial statements are provided below:
Statements of Income and Retained Earnings
for the Fiscal Years Ended:
June 30, 2015
June 30, 2014
June 30, 2013
Net Sales
$2,004,719
$1,937,021
$1,835,987
Other Income
18,636
17,153
14,614
Total Revenues
2,023,355
1,954,174
1,850,601
Cost of Goods Sold
848,363
847,366
814,483
Selling, General, & Administrative Expenses
733,498
711,610
666,909
Interest Expense
615
958
1,097
Total Costs and Expenses
1,582,476
1,559,934
1,482,489
Income Before Taxes
440,879
394,240
368,112
Income Taxes
136,378
122,614
128,840
Net Income
304,501
271,626
239,272
Retained Earnings at Beginning of Year
1,032,139
898,512
746,541
Dividends Declared
(152,023)
(137,999)
(87,301)
Retained Earnings at End of Year
$1,184,617
$1,032,139
$ 898,512
Per Average Share Amounts:
Net income per share of common stock
$2.63
$2.34
$1.99
Dividends per share of common stock
$1.30
$1.17
$1.02
Balance Sheets
June 30, 2015
June 30, 2014
Cash
$ 214,572
$ 206,627
Short-term Investments
137,112
120,728
Accounts Receivable
194,877
175,967
Inventory
256,108
247,392
Other Current Assets
40,403
46,959
Total Current Assets
843,072
797,673
Long-term Investments
39,888
26,375
Other Non-current Assets
92,183
59,566
Note Receivable
25,522
29,038
Land
36,013
26,298
Buildings and Building Equipment
310,212
277,808
Machinery and Equipment
642,656
566,766
Less: Accumulated Depreciation
(432,050)
(401,279)
Total Assets
$1,557,496
$1,382,245
Accounts Payable
$ 76,691
$ 71,001
Accrued Expenses
67,848
78,378
Dividend Payable
23,222
22,034
Income and Other Taxes Payable
50,865
54,403
Total Current Liabilities
218,626
225,816
Bonds Payable
104,885
101,057
Other Non-current Liabilities
40,312
30,874
Total Liabilities
363,823
357,747
Preferred Stock, no par
3,157
3,157
Common Stock, $1 par
12,339
2,339
Additional Paid-in-Capital
272
226
Retained Earnings
1,184,617
1,032,139
Treasury Stock (common shares at cost)
(6,712)
(13,363)
Total Stockholders’ Equity
1,193,673
1,024,498
Total Liabilities and Stockholders’ Equity
$1,557,496
$1,382,245
Refer to Recovery Solutions, Inc. Evaluate the company’s asset efficiency ratios, including accounts receivable turnover, inventory turnover, and
asset turnover.
164. Recovery Solutions, Inc.
Comparative financial statements are provided below:
Statements of Income and Retained Earnings for
the Fiscal Years Ended:
June 30, 2015
June 30, 2014
June 30, 2013
Net Sales
$2,004,719
$1,937,021
$1,835,987
Other Income
18,636
17,153
14,614
Total Revenues
2,023,355
1,954,174
1,850,601
Cost of Goods Sold
848,363
847,366
814,483
Selling, General, & Administrative Expenses
733,498
711,610
666,909
Interest Expense
615
958
1,097
Total Costs and Expenses
1,582,476
1,559,934
1,482,489
Income Before Taxes
440,879
394,240
368,112
Income Taxes
136,378
122,614
128,840
Net Income
304,501
271,626
239,272
Retained Earnings at Beginning of Year
1,032,139
898,512
746,541
Dividends Declared
(152,023)
(137,999)
(87,301)
Retained Earnings at End of Year
$1,184,617
$1,032,139
$ 898,512
Per Average Share Amounts:
Net income per share of common stock
$2.63
$2.34
$1.99
Dividends per share of common stock
$1.30
$1.17
$1.02
Balance Sheets
June 30, 2015
June 30, 2014
Cash
$ 214,572
$ 206,627
Short-term Investments
137,112
120,728
Accounts Receivable
194,877
175,967
Inventory
256,108
247,392
Other Current Assets
40,403
46,959
Total Current Assets
843,072
797,673
Long-term Investments
39,888
26,375
Other Non-current Assets
92,183
59,566
Note Receivable
25,522
29,038
Land
36,013
26,298
Buildings and Building Equipment
310,212
277,808
Machinery and Equipment
642,656
566,766
Less: Accumulated Depreciation
(432,050)
(401,279)
Total Assets
$1,557,496
$1,382,245
Accounts Payable
$ 76,691
$ 71,001
Accrued Expenses
67,848
78,378
Dividend Payable
23,222
22,034
Income and Other Taxes Payable
50,865
54,403
Total Current Liabilities
218,626
225,816
Bonds Payable
104,885
101,057
Other Non-current Liabilities
40,312
30,874
Total Liabilities
363,823
357,747
Preferred Stock, no par
3,157
3,157
Common Stock, $1 par
12,339
2,339
Additional Paid-in-Capital
272
226
Retained Earnings
1,184,617
1,032,139
Treasury Stock (common shares at cost)
(6,712)
(13,363)
Total Stockholders’ Equity
1,193,673
1,024,498
Total Liabilities and Stockholders’ Equity
$1,557,496
$1,382,245
Refer to Recovery Solutions, Inc. Evaluate the company’s profitability ratios for 2015 and 2014, including the gross profit percentage, operating
margin percentage, net profit margin percentage, return on assets, and return on equity. Assume that total assets and total stockholders’ equity at June
30, 2013 were $1,250,000 and 969,000, respectively. Also assume that the tax rate is 30% for all periods presented.
165. Recovery Solutions, Inc.
Comparative financial statements are provided below:
Statements of Income and Retained Earnings for
the Fiscal Years Ended:
June 30, 2015
June 30, 2014
June 30, 2013
Net Sales
$2,004,719
$1,937,021
$1,835,987
Other Income
18,636
17,153
14,614
Total Revenues
2,023,355
1,954,174
1,850,601
Cost of Goods Sold
848,363
847,366
814,483
Selling, General, & Administrative Expenses
733,498
711,610
666,909
Interest Expense
615
958
1,097
Total Costs and Expenses
1,582,476
1,559,934
1,482,489
Income Before Taxes
440,879
394,240
368,112
Income Taxes
136,378
122,614
128,840
Net Income
304,501
271,626
239,272
Retained Earnings at Beginning of Year
1,032,139
898,512
746,541
Dividends Declared
(152,023)
(137,999)
(87,301)
Retained Earnings at End of Year
$1,184,617
$1,032,139
$ 898,512
Per Average Share Amounts:
Net income per share of common stock
$2.63
$2.34
$1.99
Dividends per share of common stock
$1.30
$1.17
$1.02
Balance Sheets
June 30, 2015
June 30, 2014
Cash
$ 214,572
$ 206,627
Short-term Investments
137,112
120,728
Accounts Receivable
194,877
175,967
Inventory
256,108
247,392
Other Current Assets
40,403
46,959
Total Current Assets
843,072
797,673
Long-term Investments
39,888
26,375
Other Non-current Assets
92,183
59,566
Note Receivable
25,522
29,038
Land
36,013
26,298
Buildings and Building Equipment
310,212
277,808
Machinery and Equipment
642,656
566,766
Less: Accumulated Depreciation
(432,050)
(401,279)
Total Assets
$1,557,496
$1,382,245
Accounts Payable
$ 76,691
$ 71,001
Accrued Expenses
67,848
78,378
Dividend Payable
23,222
22,034
Income and Other Taxes Payable
50,865
54,403
Total Current Liabilities
218,626
225,816
Bonds Payable
104,885
101,057
Other Non-current Liabilities
40,312
30,874
Total Liabilities
363,823
357,747
Preferred Stock, no par
3,157
3,157
Common Stock, $1 par
12,339
2,339
Additional Paid-in-Capital
272
226
Retained Earnings
1,184,617
1,032,139
Treasury Stock (common shares at cost)
(6,712)
(13,363)
Total Stockholders’ Equity
1,193,673
1,024,498
Total Liabilities and Stockholders’ Equity
$1,557,496
$1,382,245
Refer to Recovery Solutions, Inc. Calculate the return on common equity ratio for 2015 and 2014. Assume that preferred stock and total
stockholders’ equity at June 30, 2013, were $3,157 and $969,000, respectively.
166. Recovery Solutions, Inc.
Comparative financial statements are provided below:
Statements of Income and Retained Earnings
for the Fiscal Years Ended:
June 30, 2015
June 30, 2014
June 30, 2013
Net Sales
$2,004,719
$1,937,021
$1,835,987
Other Income
18,636
17,153
14,614
Total Revenues
2,023,355
1,954,174
1,850,601
Cost of Goods Sold
848,363
847,366
814,483
Selling, General, & Administrative Expenses
733,498
711,610
666,909
Interest Expense
615
958
1,097
Total Costs and Expenses
1,582,476
1,559,934
1,482,489
Income Before Taxes
440,879
394,240
368,112
Income Taxes
136,378
122,614
128,840
Net Income
304,501
271,626
239,272
Retained Earnings at Beginning of Year
1,032,139
898,512
746,541
Dividends Declared
(152,023)
(137,999)
(87,301)
Retained Earnings at End of Year
$1,184,617
$1,032,139
$ 898,512
Per Average Share Amounts:
Net income per share of common stock
$2.63
$2.34
$1.99
Dividends per share of common stock
$1.30
$1.17
$1.02
Balance Sheets
June 30, 2015
June 30, 2014
Cash
$ 214,572
$ 206,627
Short-term Investments
137,112
120,728
Accounts Receivable
194,877
175,967
Inventory
256,108
247,392
Other Current Assets
40,403
46,959
Total Current Assets
843,072
797,673
Long-term Investments
39,888
26,375
Other Non-current Assets
92,183
59,566
Note Receivable
25,522
29,038
Land
36,013
26,298
Buildings and Building Equipment
310,212
277,808
Machinery and Equipment
642,656
566,766
Less: Accumulated Depreciation
(432,050)
(401,279)
Total Assets
$1,557,496
$1,382,245
Accounts Payable
$ 76,691
$ 71,001
Accrued Expenses
67,848
78,378
Dividend Payable
23,222
22,034
Income and Other Taxes Payable
50,865
54,403
Total Current Liabilities
218,626
225,816
Bonds Payable
104,885
101,057
Other Non-current Liabilities
40,312
30,874
Total Liabilities
363,823
357,747
Preferred Stock, no par
3,157
3,157
Common Stock, $1 par
12,339
2,339
Additional Paid-in-Capital
272
226
Retained Earnings
1,184,617
1,032,139
Treasury Stock (common shares at cost)
(6,712)
(13,363)
Total Stockholders’ Equity
1,193,673
1,024,498
Total Liabilities and Stockholders’ Equity
$1,557,496
$1,382,245
Refer to Recovery Solutions, Inc. Perform DuPont analysis for 2015 and 2014, showing all three components. Assume that total assets and total
stockholders’ equity at June 30, 2013, were $1,250,000 and 969,000, respectively.
167. Show the effect of each of the transactions below on total assets and the current ratio by using one of the
symbols in each box to complete the table. If the numerator and denominator of a ratio both increase or both
decrease by the same amount, the effect of the event on the ratio is “O” or no effect.
Effect
Symbol
Increase
+
Decrease
–
No effect
N
Insufficient Data
O
Effect on
Effect on the
Total Assets
Current Ratio
Cash received from customers for accounts receivable balances due
Cash sales of long-term assets for an amount in excess of cost
Declaration and payment of cash dividends
Payment of interest expense
Purchase of long-term assets for cash
Purchase of office supplies for cash
Effect on
Effect on the
Total Assets
Current Ratio
Cash received from customers for accounts receivable balances due
N
N
Cash sales of long-term assets for an amount in excess of cost
+
+
Declaration and payment of cash dividends
–
–
Payment of interest expense
–
–
Purchase of long-term assets for cash
N
–
Purchase of office supplies for cash
N
N
15.09% ´ 1.36 ´ 1.33 = 27.27%
168. Show the effect of each of the transactions below on total liabilities and the debt-to-equity ratio by using
one of the symbols in each box to complete the table. If the numerator and denominator of a ratio both increase
or both decrease by the same amount, the effect of the event on the ratio is “O” or no effect.
Effect
Symbol
Increase
+
Decrease
–
No effect
N
Insufficient Data
O
Effect on
Effect on the Debt-
Total Liabilities
to-Equity Ratio
Cash received from customers for accounts receivable balances due
Declaration and payment of cash dividends
Purchase of long-term assets for cash
169. For what purpose is horizontal analysis used by financial analysts?
Effect on
Effect on the Debt-
Cash received from customers for accounts receivable balances due
N
N
Declaration and payment of cash dividends
N
+
Purchase of long-term assets for cash
N
N
170. Use the following selected financial information to compare these three companies and answer the
questions that follow.
Ratio
Results at
December 31:
RBC Co.
Rama Co.
Rock Co.
Current Ratio
2015
3.3
2.8
1.8
2014
2.5
2.8
3.2
Quick Ratio
2015
2.1
1.5
0.5
2014
2.0
1.3
1.2
Inventory Turnover Ratio
2015
5.4
6.8
6.0
2014
5.5
7.6
12.6
A)
Which company appears to be in the best position regarding asset efficiency based solely on the inventory turnover ratio?
B)
Which company has the best short-term liquidity?
C)
Which company appears to be heading in the wrong direction in terms of its ability to pay current obligations as they come due?
171. Why is liquidity important for businesses?
172. What is meant by the concept of efficiency as it relates to turnover ratios? Explain.
173. What makes the analysis of a service company different than analysis of a manufacturing company?
174. Would a banker be more interested in the liquidity or profitability of a company? Explain.
175. What importance is placed on a company’s stock price in the ratio analysis of a company? Explain.
176. What do profitability ratios measure?
177. Agrefeld, Inc. has a return on assets of 12% and a return on common equity of 15%. What causes the
difference in these two returns?
178. What are some weaknesses of performing time series analysis alone?
179. What is the primary weaknesses of using raw financial statement numbers in cross sectional analysis? How
can the problem be solved?
180. “You Decide” Essay
A couple of years ago you inherited a substantial sum of money. This morning one of your second cousins
approached you about her struggling day spa business that caters to college students. She would like to borrow
$20,000 for a state-of-the-art tanning room for her business. She assures you that the business is steadily
growing and promises that you will have your money back in six to nine months at the latest. You are
concerned about the day spa’s ability to generate sufficient resources to repay the loan. What financial ratios
can you examine to assess the short-term liquidity of your cousin’s day spa? Provide the formula for each
ratio.
181. “You Decide” Essay
You are a financial analyst for R&B Communications. One of your current assignments is to prepare an end-of-
the year analysis of your employer’s financial health. Today, you want to assess the company’s working
capital. You note that the end-of-year working capital is $15,000 greater than the working capital at the
beginning of the year:
End-of-Year Beginning-of-Year
Current assets:
Cash $ 28,000 $ 33,000
Marketable securities 50,000 27,000
Accounts receivables 24,000 30,000
Inventories 153,000 97,500
Total current assets $255,000 $187,500
Current liabilities 127,500 75,000
Working capital $127,500 $112,500
Has your company’s current position improved? Explain.