CHAPTER 15 Financial Statement Analysis
E 15-42
=
E 15-43
=
3. Accounts Receivable Turnove
r
in Da
y
s
=
1. =
Current Assets
Current Liabilities
Current Ratio
=
$3,000,000
$3,600,000
=
Average Accounts Receivable1.
Beginning Accounts Receivable
=Days in a Year
=
=
40.6 days
Accounts Receivable Turnover Ratio
365 days
9.0 times
$6,000,000
+ Ending Accounts Receivable
2
$5,000,000 + $7,000,000
2
1.20
CHAPTER 15 Financial Statement Analysis
E 15-44
=
= 7.63 days
E 15-45
=
=
3. Accounts Receivable in Days
Beginning Inventory + Ending Inventory
1. Average Accounts Receivable = Ending Accounts Receivable
2
=
=
=
Accounts Receivable Turnover Ratio
Days in a Year
=
3.
Average Inventory1.
Inventory Turnover in Days
=
=
=4.55 times
Beginning Accounts Receivable +
Inventory Turnover Ratio
2
$342,500,000
$2,625,250,000
2
$2,500,500,000 + $2,750,000,000
2
365 days
47.81 times
80.22 days
$335,000,000 + $350,000,000
365 days
Days in a Year
CHAPTER 15 Financial Statement Analysis
E 15-46
E 15-47
1. Current Liabilities = Total Liabilities – Long-Term Liabilities
= $2,000,000 – $1,500,000
3. Average Accounts
Receivable
5. Average Inventory = Cost of Goods Sold/Inventory Turnover*
= ($8,000,000 net sales – $3,000,000 gross margin)/100
= $50,000
*Inventory Turnove
r
= 365/Average Inventory in Days
= 365/3.65
= 100
3.
1. Average Inventory Beginning Inventory + Ending Inventory
2
$53,420 + $62,640
2= $58,030
=
=
=Inventory Turnover in Days
=
= 10.1 days
365 days
36 times
Inventory Turnover Ratio
Days in a Yea
r
Net Sales
Accounts Receivable Turnover
=
$8,000,000
CHAPTER 15 Financial Statement Analysis
E 15-48
= 12.0 times
E 15-49
=
3. The debt ratio and debt-to-equity ratio are commonly used measures of a
company’s financial riskiness. As calculated in Requirement 1, Busch’s debt ratio
is 0.80, which indicates that for every $1.00 of assets, Busch has taken on debt
of $0.80. Stated a bit differently, Busch has chosen to finance 80% of its assets
with debt. As calculated in Requirement 2, Busch’s debt-to-equity ratio is 4.05,
which indicates that for every $1.00 of equity, Busch has taken on $4.05 of
liabilities. Taken together, it appears as though Busch has chosen to pursue a
rather high-risk financing strategy. As a side note, some investors view the retail
industry as highly risky, which forces some retail organizations that need
capital to take on more debt than perhaps they desire. Therefore, given what
appears to be a relatively high-risk financing strategy, Busch should calculate
=$500,000
$5,500,000 + $500,000
Total Liabilities
Total Assets
Times-Interest-Earned Ratio
$510,900
0.80
=
=
$636,900
Income Before Taxes + Interest Expense
Interest Expense
=
Debt Ratio
1.
CHAPTER 15 Financial Statement Analysis
E 15-50
=
=
E 15-51
2. The return on sales ratio illustrates the number of cents from each sales
dollar that is left over after covering all expenses, including production costs
(in cost of goods sold), period costs of the current period (such as supplies,
research and development, etc.), and period costs that are depreciated over
4.50
Income Before Taxes + Interest Expense
=Interest Expense
1.
3.
Times-Interest-Earned Ratio
Debt-to-Equity Ratio
$3,500,000 + $1,000,000
$1,000,000
Return on Sales = Sales
=
1. Net Income
=
=
Total Liabilities
Total Equity
$10,250,000
$6,150,000
1.67
CHAPTER 15 Financial Statement Analysis
E 15-52
=
E 15-53
1. Average Common
Stockholders’ Equity
=
Note: Remember that beginning (or ending) common stockholders’ equity
equals total stockholders’ equity minus preferred stock.
$11,925,000
Average Total Assets1.
=
=
=
=
Beginning Total Assets + Ending Total Assets
2
2
Ending Common Stockholders’ Equity
Beginning Common Stockholders’ Equity +
$11,800,000 + $12,050,000
2
$17,350,000 + $16,400,000
2
$16,875,000
CHAPTER 15 Financial Statement Analysis
E 15-54
1. Preferred Dividends = $4,000,000 × 0.08 = $320,000
$3,000,000
$3
$51.50
$2.86
=
E 15-55
=
$2.60
$51.50
= 0.05, or 5%
2. Number of Common Shares
Dividends per Share 1.
Price-Earnings Ratio4.
Dividend Yield2. =
=
=
=
==
=
Market Price per Share
Earnings per Share
1,000,000
$2.60 per share
18
Market Price per Common Share
Dividends per Common Share
1,000,000 shares
$2,600,000
CHAPTER 15 Financial Statement Analysis
P 15-56
1. Current Assets = $250,000 + $400,000 + $100,000 + $200,000 + $50,00
0
=
2. Quick or Acid-Test
Ratio
4. Accounts Receivable
Turnover in Days
*Average Inventory = ($200,000 + $250,000)/2 = $225,000
6. Inventor
y
Turnover
in Da
y
s
= 63.15 days
=
=
=
=
=
=
=
365 days
Accounts Receivable Turnover
365 days
7 times 52.14 days
PROBLEMS
$1,000,000
$400,000 2.50
Cash + Marketable Securities + Accounts Receivable
Current Liabilities
1.75
$700,000
$400,000 =
Inventory Turnover Ratio
365 days
5.78 times
365 days
CHAPTER 15 Financial Statement Analysis
P 15-57
=
3. The times-interest-earned ratio is very close to the lower quartile, which means
that relative to most companies in the industry, Grammatico Company has a
1.
Times-Interest-Earned Ratio
=
=
=
$200,000 + $140,000
$340,000
$140,000
2.43
Income Before Taxes + Interest Expense
Interest Ex
p
ense
$140,000
CHAPTER 15 Financial Statement Analysis
P 15-58
=
= $5.75 per share
=
Return on Assets1.
Earnings per Share3.
Dividend Yield5.
=
=
=
=
=
=
=
0.0375
$40.00
Net Income – Preferred Dividends
Average Common Shares
Net Income + [Interest Expense(1 – Tax Rate)]
Average Total Assets
0.088
$5,000,000 + ($400,000 × 0.66)
$60,000,000
$5,000,000 – $400,000
800,000 shares
$1,200,000/800,000 shares
$40
$1.50
Dividends per Common Share
Market Price per Common Share
CHAPTER 15 Financial Statement Analysis
P 15-59
1.
This Yea
r
Last Yea
r
Current assets:
Cash……………………………………
…
$ 50,000 $100,000 (50.0)%
Accounts receivable, net……………
…
300,000 150,000 100.0
Inventory………………………………
…
600,000 400,000 50.0
Current liabilities:
Accounts payable……………………
…
$ 400,000 $290,000 37.9
Short-term notes payable……………
…
200,000 60,000 233.3
Total current liabilities…………………… $ 600,000 $350,000 71.4
Long-term bonds payable, 12%………
…
100,000 150,000 (33.3)
Liabilities and Stockholders’ Equity
Kepler Company
Comparative Balance Sheets
Percent
Change
Assets
…
…
…