Quick ratio*
Days’ sales
uncollected*
Receivables
turnover*
Current ratio* $150,000
P4. Comprehensive Ratio Analysis of Two Companies
Ratio Name
1.
$192,400
6. Company
with More
Favorable Ratio
Single
Single
$80,000
22.7
+
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
timestimes
times
=
6. Company
with More
Favorable Ratio
Inventory
turnover* =
e.
times
f.
P4. Comprehensive Ratio Analysis of Two Companies (Continued)
g.
25.9 Design
Payables
turnover*
Days’
inventory
on hand*
365 days
= 30.9
37.2 days
i. Financing
period
h.
Days’
payable*
*Rounded
Design
times
365 days
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
6. Company
with More
Favorable Ratio
times
$4,987,200
1.7%
2. Profitability and
Design
= 1.2%
= Single
$4,987,200 4.3%
P4. Comprehensive Ratio Analysis of Two Companies (Continued)
Single
Design=
=
Single
16-33
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Single
P4. Comprehensive Ratio Analysis of Two Companies (Continued)
3.
6. Company
with More
Favorable Ratio
Design
+
time
Design
$2,112,000
$2,000,000
Design
–– ––
6. Company
with More
Favorable Ratio
times1.6
Design
Design
=
$215,400 1.3
4.
Cash flows to
sales*
$271,500 =
$271,500
$25,210,000
times
Single
5.3%
$492,500
=5.4% $9,326,600
$1,050,000$114,000
Free cash
flow ($403,500)
$50,000 Single
yield*
$271,500 =
P4. Comprehensive Ratio Analysis of Two Companies (Continued)
Ratio Name Single
($671,500)
Cash flows to
assets*
$625,000
Neutral
$4,987,200
=
16-35
//
7.
$114,000
Price/
earnings
(P/E) ratio*
Design
$76.00 =
Single
times
P4. Comprehensive Ratio Analysis of Two Companies (Concluded)
5.
Ratio Name Single
times
$60.00
$4.31
shares
$76.00
Design
==
5.0%= $3.80
=
$60.00
$60.00
7.5
30,000
$1.00
=
shares
Dividend
yield*
$50,000
1.7%
6. Company
with More
Favorable Ratio
16-36
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1.
P5. Effect of Alternative Accounting Methods
For the Year Ended December 31, 2014
Furlong Corporation
Alternative Income Statements
Income Statement Using FIFO
and Straight-Line Methods
16-37
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2.
3.
$208,400 $200,800
FIFO Method
Inventory Turnover
LIFO Method
$ 90,000
180,000 90,000
$ 97,600
$ 7,600
746,800
P5. Effect of Alternative Accounting Methods (Continued)
*Rounded
Ending Inventory
Depreciation:
Straight-line method
Double-declining-balance method
Difference in net income
Schedule of Differences in Net Income
For the Year Ended December 31, 2014
LIFO
Furlong Corporation
Difference in net income:
Net income using LIFO and double-declining-
Differences resulting from alternative methods:
Cost of goods sold:
16-38
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4.
$190,800
$80,000 + $200,800 + $900,000 – $180,000
$93,200
$1,000,800
FIFO/Straight-Line Methods
would be more willing to accept a lower return on assets in the LIFO/double-declining-
balance case.
Return on Assets
sold and depreciation costs against revenues in earlier years. Therefore, analysts
$93,200
Net Income =
=
The LIFO and double-declining-balance methods produce a lower return on assets.
This combination of accounting methods produces a more conservative net income
figure than the FIFO/straight-line methods because it charges higher cost of goods
$190,800
P5. Effect of Alternative Accounting Methods (Concluded)
*Rounded
= = 9.3%
LIFO/Double-Declining-Balance Methods
*
16-39
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1.
P6. Corporate Income Statement
Income Statement
For the Year Ended December 31, 2014
Krall Corporation
16-40
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