Title: Question 1
QA_Ori: Financial reporting includes the entire process of preparing and issuing financial
Title: Question 2
QA_Ori: With comparative statements, financial statement items for two or more successive
accounting periods are placed side by side on a single statement, with the change in each
Title: Question 3
QA_Ori: Total assets (or equivalently, the total of liabilities plus equity) are assigned a value
Title: Question 4
QA_Ori: The nature of a company’s business, the composition of its current assets, and the
QA_Edit:
Title: Question 5
QA_Ori: A 2-to-1 current ratio may not be adequate if the company’s current assets consist
Title: Question 6
QA_Ori: Adequate working capital enables a company to carry sufficient inventories, meet
Title: Question 7
QA_Ori: When evaluated in light of a company’s credit terms, the number of days’ sales
Title: Question 8
QA_Ori: A high accounts receivable turnover implies that accounts are collected quickly,
Title: Question 9
QA_Ori: Users are interested in the capital structure of a company, as measured by debt
and equity ratios, for at least two reasons. First, as a company includes more debt in its
QA_Edit:
Title: Question 10
QA_Ori: Inventory turnover reflects on the efficiency of inventory management. That is, a
QA_Edit:
Title: Question 11
QA_Ori: Since management is responsible for a company’s performance, all ratios that are
useful in evaluating a company are of some usefulness in assessing management
QA_Edit:
Title: Question 12
QA_Ori: Almost all companies have some liabilities. Since total assets equals total
liabilities plus equity, total assets are almost always higher than common stockholders’
Title: Question 13
QA_Ori: This gain is considered to be unusual but not infrequent. It would be included in
Title: Question 14
QA_Ori:
Profit margin: Net Income / Sales ($ in thousands)
Title: Question 15
QA_Ori:
Equity ratio: Total Equity / Total Assets ($ in thousands)
QA_Edit:
Title: Question 16
QA_Ori:
Debt ratio: Total Liabilities / Total Assets (€ in thousands)
QA_Edit:
Title: Question 17
QA_Ori:
Return on total assets: Net Income / Average Total Assets (€ in thousands)
Title: Quick Study 17-1
QA_Ori:
Items not part of general-purpose financial statements:
d. Prospectus.
QA_Edit:
Title: Quick Study 17-2
QA_Ori:
Trend percents
Title: Quick Study 17-3
QA_Ori:
Common-size percents
Title: Quick Study 17-4
QA_Ori:
2013 2012
Dollar
Change
Percent
Change
Short-term investments……………..$374,634 $234,000 $140,634 60.1%
QA_Edit:
Title: Quick Study 17-5
QA_Ori:
The four usual standards of comparisons are:
Intracompany. The company under analysis provides standards for
Industry. Industry statistics can provide standards of comparisons. Published
Guidelines (Rules of Thumb). General standards of comparisons can develop
All of these standards of comparisons are useful when properly applied. Yet,
The standard that is least likely to provide a good basis for comparison is the use
Title: Quick Study 17-6
QA_Ori:
Ratio 2013 2012 Change
1. Profit Margin Ratio…………………………….. 9% 8% Favorable
2. Debt Ratio………………………………………..47% 42% Unfavorable
3. Gross Margin Ratio……………………………34% 46% Unfavorable
Title: Quick-Study 17-7
QA_Ori:
Parker has a greater amount of working capital. This by itself does not indicate
whether the company is more capable of meeting its current obligations.
This evidence also shows that Parker’s working capital, current ratio, and
The accounts receivable turnover and inventory turnover indicate that Morgan is
more efficient in collecting its accounts receivable and in generating sales from
Title: Quick Study 17-8A
QA_Ori: This material error should be reported on the statement of retained
earnings (and/or the statement of stockholders’ equity) as a prior period
Title: Quick Study 17-9
QA_Ori:
a. Although ratio analysis can eliminate currency differences, it cannot eliminate
differences in the application of GAAP under different accounting systems.
Additional examples that are arguably even more problematic: (1) Consider
two companies, one reporting under U.S. GAAP and the other under IFRS,
b. A key advantage to using horizontal and vertical analyses when examining
companies reporting under different currencies is that the computation of the
Title: Exercise 17-1
QA_Ori:
1. B 6. A
Title: Exercise 17-2
QA_Ori:
1. Profit Margin and the Total Asset Turnover.
Return on Total Assets.
QA_Edit:
Title: Exercise 17-3
QA_Ori:
2015 2014 2013 2012 2011
Sales………………………………….189 181 168 156 100
Given the trend in sales, the comparative trends in both cost of goods sold and
Title: Exercise 17-4
QA_Ori:
Answer: Net income decreased.
Supporting calculations: When the sum of each year’s common-size cost of goods
sold and total expenses is subtracted from the common-size sales percent, the net
income percent is as follows:
Next, if 2012 sales are assumed to be $100, then sales for 2013 are $104.20 and the
This shows that net income decreased over the three-year period.
QA_Edit:
Title: Exercise 17-5
QA_Ori:
2013 2012
Sales……………………………………………..100.0% 100.0%
Analysis: Overall, this company’s situation has worsened. This is evident from the
substantial decline in net income as a percent of sales for 2013 (7.0%) relative to
Title: Exercise 17-6
QA_Ori:
COMPARATIVE ANALYSIS REPORT
Clay’s profit margins are higher than Roak’s. However, Roak has significantly
The trends of both companies include evidence of growth in sales, total asset
To some extent, Roak’s higher total asset turnover ratios may result from the fact
Finally, Roak successfully employed financial leverage in 2015. Its return on total