S15-8 Measuring ability to pay liabilities
Learning Objective 4
Requirements
1. Compute the debt ratio and the debt to equity ratio at May 31, 2018, for Accel’s Companies.
2. Is Accel’s ability to pay its liabilities strong or weak? Explain your reasoning.
SOLUTION
S15-9 Measuring profitability
Learning Objective 4
Requirements
1. Compute the profit margin ratio for Accel’s Companies for 2018.
2. Compute the rate of return on total assets for 2018.
3. Compute the asset turnover ratio for 2018.
4. Compute the rate of return on common stockholders’ equity for 2018.
5. Are these rates of return strong or weak? Explain your reasoning.
SOLUTION
S15-9, cont.
Requirement 4
$35,800
Requirement 5
S15-10 Computing EPS and P/E ratio
Learning Objective 4
Requirements
1. Compute earnings per share (EPS) for 2018 for Accel’s. Round to the nearest cent.
2. Compute Accel’s Companies’ price/earnings ratio for 2018. The market price per share of
Accel’s stock is $12.50.
3. What do these results mean when evaluating Accel’s Companies’ profitability?
SOLUTION
Requirement 3
S15-11 Using ratios to reconstruct an income statement
Learning Objective 4
Old Mills’s income statement appears as follows (amounts in thousands):
Use the following ratio data to complete Old Mills’s income statement:
1. Inventory turnover is 3.70 (beginning Merchandise Inventory was $810; ending Merchandise
Inventory was $770).
2. Profit margin ratio is 14%.
SOLUTION
S15-12 Using ratios to reconstruct a balance sheet
Learning Objective 4
Traditional Mills’s balance sheet appears as follows (amounts in thousands):
Use the following ratio data to complete Traditional Mills’s balance sheet.
1. Current ratio is 0.72.
2. Acid-test ratio is 0.36.
S15-12, cont.
SOLUTION
Exercises
E15-13 Performing horizontal analysis—income statement
Learning Objective 2
1. Net Income 34.7%
Data for Mulberry Designs, Inc. follow:
Requirements
1. Prepare a horizontal analysis of the comparative income statement of Mulberry Designs, Inc.
Round percentage changes to one decimal place.
2. Why did 2018 net income increase by a higher percentage than net sales revenue?
SOLUTION
Requirement 1
E15-14 Computing trend analysis
Learning Objective 2
1. 2019 Net Income 153%
Grand Oaks Realty’s net revenue and net income for the following five-year period, using 2015
as the base year, follow:
2019 2018 2017 2016 2015
Net Revenue $ 1,360,000 $ 1,180,000 $ 1,147,000 $ 1,008,000 $ 1,044,000
Net Income 127,000 120,000 87,000 75,000 83,000
Requirements
1. Compute a trend analysis for net revenue and net income. Round to the nearest full percent.
2. Which grew faster during the period, net revenue or net income?
SOLUTION
Requirement 1
E15-15 Performing vertical analysis of a balance sheet
Learning Objective 3
2018 Current Assets: 12.5%
Theta Designs, Inc. has the following data:
Perform a vertical analysis of Theta Designs’s balance sheet for each year.
E15-15, cont.
SOLUTION
E15-16 Preparing common-size income statements
Learning Objective 3
1. 2018 Net Income 27.6%
Refer to the data presented for Mulberry Designs, Inc. in Exercise E15-13.
Requirements
1. Prepare a comparative common-size income statement for Mulberry Designs, Inc. using the
2018 and 2017 data. Round percentages to one-tenth percent (three decimal places).
2. To an investor, how does 2018 compare with 2017? Explain your reasoning.
SOLUTION
Requirement 1