Problem 12-5B (LO12.4)

Profitability Ratios

Calculations

1. Gross profit ratio

$3,450,000

$8,900,000

= 38.8%

Chapter 12 - Financial Statement Analysis

Problem 12-6B (LO12.3, 12.4)

Requirement 1

Risk Ratios

Calculations

Receivables turnover ratio

2018

$8,900,000

($810,000 + $790,000) / 2

= 11.1 times

Inventory turnover ratio

Current ratio

2018

$2,469,000

$155,000

= 15.9 to 1

Chapter 12 - Financial Statement Analysis

Requirement 2

Profitability Ratios

Calculations

Gross profit ratio

2018

$3,450,000

$8,900,000

= 38.8%

Return on assets

2018

$1,230,000

($3,124,000 + $3,199,000) / 2

= 38.9%

Asset turnover

Requirement 3

Regarding risk, the receivables turnover slightly improved and the debt to equity ratio

declined, which are both positive signs. However, the inventory turnover ratio and

current ratio both declined in 2019.

Chapter 12 - Financial Statement Analysis

ADDITIONAL PERSPECTIVES

Continuing Problem: Great Adventures

AP12-1

Requirement 1

Note: Assume all sales and services are on credit.

Risk Ratios

Calculations

a. Receivables turnover ratio

$661,000

($45,000 + $35,000) / 2

= 16.5 times

4.5

e. Current ratio

$397,362

$69,750

= 5.7 to 1

Chapter 12 - Financial Statement Analysis

Requirement 2

Profitability Ratios

Calculations

a. Gross profit ratio

$118,000 − $70,000

$118,000

= 40.7%

Requirement 3

Regarding risk, Great Adventures appears to be in great shape. Liquidity is strong

based on the receivable turnover ratio, current ratio, and acid-test ratio. They may be

Chapter 12 - Financial Statement Analysis

Financial Analysis: American Eagle

AP12-2

Requirement 1

Risk Ratios

Calculations

a. Receivable turnover ratio

$3,282,867

($73,882 + $67,894) / 2

= 46.3 times

Chapter 12 - Financial Statement Analysis

12-44 Financial Accounting, 4e

Requirement 2

Profitability Ratios

Calculations

a. Gross profit ratio

$1,154,674

$3,282,867

= 35.2%

Chapter 12 - Financial Statement Analysis

Financial Analysis: The Buckle

AP12-3

Requirement 1

Risk Ratios

Calculations

a. Receivable turnover ratio

$1,153,142

($4,318 + $8,567) / 2

= 179.0 times

Chapter 12 - Financial Statement Analysis

Requirement 2

Profitability Ratios

Calculations

a. Gross profit ratio

$507,332

$1,153,142

= 44.0%

Chapter 12 - Financial Statement Analysis

Comparative Analysis: American Eagle vs. The Buckle

AP12-4

Requirement 1

American Eagle

Risk Ratios

Calculations

a. Receivable turnover ratio

$3,282,867

($73,882 + $67,894) / 2

= 46.3 times

Chapter 12 - Financial Statement Analysis

The Buckle

Risk Ratios

Calculations

a. Receivable turnover ratio

$1,153,142

($4,318 + $8,567) / 2

= 179.0 times

Chapter 12 - Financial Statement Analysis

Requirement 2

American Eagle

Profitability Ratios

Calculations

a. Gross profit ratio

$1,154,674

$3,282,867

= 35.2%

The Buckle

Profitability Ratios

Calculations

a. Gross profit ratio

$507,332

$1,153,142

= 44.0%

Chapter 12 - Financial Statement Analysis

Chapter 12 - Financial Statement Analysis

Ethics

AP12-5

The CFO and the CEO must decide whether to report a $2 million dollar write-down

in inventory at the end of 2018 or wait and record the write-down early in 2019. If

Chapter 12 - Financial Statement Analysis

Internet Research

AP12-6

This case provides an opportunity for students to examine ratios calculated for a

Chapter 12 - Financial Statement Analysis

Written Communication

AP12-7

Roseburg Corporation sells timber tracts for $30 million in 2018 that were purchased

for $20 million in 2014. The $10 million gain on sale is recorded as:

Debit

Credit

The issue is whether to record the $10 million gain on sale in the income statement

as part of operating income, “other revenues and expenses,” or discontinued

Chapter 12 - Financial Statement Analysis

Earnings Management

AP 12-8

Requirement 1

(a) Aggressive

Requirement 2

Requirement 3

Requirement 4

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