CHAPTER 17 Financial Statement Analysis
Prob. 17–1B
1.
2016 2015 Amount Percent
Sales $910,000 $700,000 $210,000 30.0%
Cost of goods sold 441,000 350,000 91,000 26.0%
2. The profitability has significantly improved from 2015 to 2016. Sales have
increased by 30% over the 2015 base year. However, the cost of goods sold,
Increase (Decrease)
MACKLIN INC.
Comparative Income Statement
For the Years Ended December 31, 2016 and 2015
CHAPTER 17 Financial Statement Analysis
Prob. 17–2B
1.
Amount Percent Amount Percent
Sales $1,300,000 100.0% $1,180,000 100.0%
Cost of goods sold 682,500 52.5% 613,600 52.0%
Gross profit $ 617,500 47.5% $ 566,400 48.0%
2. The net income as a percent of sales has declined. All the costs and expenses,
other than selling expenses, have maintained their approximate cost as a percent
2016 2015
FIELDER INDUSTRIES INC.
Comparative Income Statement
For the Years Ended December 31, 2016 and 2015
CHAPTER 17 Financial Statement Analysis
Prob. 17–3B
1. a. Working Capital = Current Assets – Current Liabilities
$3,200,000 – $2,000,000 = $1,200,000
2.
Working Quick Current
Capital Assets Liabilities
$1,200,000 $2,200,000 $2,000,000
1,200,000 1,912,500 1,712,500
1,200,000 2,200,000 2,400,000
1,200,000 2,075,000 1,875,000
1,200,000 2,200,000 2,000,000
1,200,000 2,200,000 2,000,000
b.
AssetsTransaction
Current
Ratio
c. =
Quick
Ratio
Current Ratio
Quick Ratio
=Current Assets
Current Liabilities
Quick Assets
Current Liabilities
Current
a. 1.6 1.1 $3,200,000
b. 1.7 1.1 2,912,500
c. 1.5 0.9 3,600,000
d. 1.6 1.1 3,075,000
f. 1.6 1.1 3,200,000
h. 1.6 1.1 3,200,000
Supporting Data
CHAPTER 17 Financial Statement Analysis
Prob. 17–4B
1. Working Capital: $3,690,000 – $900,000 = $2,790,000
Calculated
Numerator Denominator Value
2. Current ratio $3,690,000 $900,000 4.1
7. Number of days’ sales in
inventory
10. Number of times interest
charges are earned
11. Number of times preferred
15. Rate earned on common
stockholders’ equity
17. Price-earnings ratio 119.70 8.55 14.0
19. Dividend yield $0.50 $119.70 0.4%
Ratio
($1,190,000 + $950,000) ÷ 2 $5,350,000 ÷ 365
73.0
$900,000 – $45,000
7.6
$1,130,000 + $170,000 $170,000
13.6%
($6,680,000 + $5,875,000) ÷ 2
CHAPTER 17 Financial Statement Analysis
Prob. 17–5B
1. a.
$6,623,780
$25,988,665
2013: $2,458,000
21.6%
25.5%2016: =
Net Income + Interest Expense
=
Average Total Assets
Rate Earned on Total Assets =
$11,370,240
0.0%
5.0%
15.0%
25.0%
30.0%
2016 2015 2014 2013 2012
Rate Earned on Total Assets
Year
Company’s rate earned on total assets
Industry rate earned on total assets
CHAPTER 17 Financial Statement Analysis
Prob. 17–5B (Continued)
1. b.
Rate Earned on
Stockholders’ Equity
=
Average Total Stockholders’ Equity
Net Income
0.0%
5.0%
10.0%
15.0%
20.0%
30.0%
35.0%
40.0%
2016 2015 2014 2013 2012
Rate Earned on Stockholders’ Equity
Year
Company’s rate earned on stockholders’ equity
Industry rate earned on stockholders’ equity
CHAPTER 17 Financial Statement Analysis
Prob. 17–5B (Continued)
1. c.
Number of Times
Interest Charges Are Earned
Net Income + Income Tax Expense + Interest Expense
Interest Expense
=
0.0
1.0
2.0
3.0
5.0
6.0
7.0
8.0
2016 2015 2014 2013 2012
Number of Times Interest Charges Are Earned
Year
Company’s number of times interest charges are earned
Industry number of times interest charges are earned
CHAPTER 17 Financial Statement Analysis
Prob. 17–5B (Continued)
1. d.
$10,672,291
$18,706,200
0.62016:
2013:
Ratio of Liabilities to
Stockholders’ Equity =
=
0.9
Total Liabilities
Total Stockholders’ Equity
$5,940,480
$6,648,000
=
0.0
0.2
0.4
0.8
1.0
1.2
1.6
2016 2015 2014 2013 2012
Ratio of Liabilities to Stockholders’ Equity
Year
Company’s liabilities to equity
Industry liabilities to equity
CHAPTER 17 Financial Statement Analysis
Prob. 17–5B (Concluded)
2. Both the rate earned on total assets and the rate earned on stockholders’ equity
are above the industry average for all five years. The rate earned on total assets is
actually improving gradually. The rate earned on stockholders’ equity exceeds the
CHAPTER 17 Financial Statement Analysis
Fiscal Fiscal
2012 2011
1. a. Total current assets……………………………………
…
$13,626.0 $11,845.0
b. Total current assets……………………………………
…
$13,626.0 $11,845.0
÷ Total current liabilities………………………………… 3,926.0 3,882.0
Current ratio…………………………………………
3.5 3.1
c. Cash………………………………………………………… $ 3,337.0 $ 2,317.0
Short-term investments…………………………………
…
2,628.0 1,440.0
…
…
d. Sales………………………………………………………
…
$25,313.0 $23,331.0
Accounts receivable (net):
Beginning of year……………………………………
$ 3,132.0 $ 3,138.0
End of year……………………………………………
3,117.0 3,132.0
e. Accounts receivable (average):
Sales……………………………………………………
$25,313.0 $23,331.0
…
f. Cost of goods sold………………………………………
…
$14,279.0 $13,183.0
Inventories:
Beginning of year……………………………………
$ 3,222.0 $ 2,715.0
NIKE, INC., PROBLEM
…
…
CHAPTER 17 Financial Statement Analysis
Fiscal Fiscal
2012 2011
g. Inventory (average)………………………………………
…
$ 3,328.0 $ 2,968.5
h. Total liabilities……………………………………………… $ 6,428.0 $ 5,084.0
÷ Total stockholders’ equity……………………………
…
11,156.0 10,381.0
Ratio of liabilities to stockholders’ equity………… 0.6 0.5
i. Sales…………………………………………………………
…
$25,313.0 $23,331.0
Total assets (excluding long-term investments):
Beginning of year……………………………………… $15,465.0 $14,998.0
…
j. Net income…………………………………………………
…
$ 2,485.0 $ 2,223.0
Plus interest expense*……………………………………
…
23.0 31.0
Total……………………………………………………… $ 2,508.0 $ 2,254.0
Total assets:
…
*See Nike note 6
k. Net income…………………………………………………
…
$ 2,485.0 $ 2,223.0
Stockholders’ equity:
Beginning of year……………………………………… $10,381.0 $ 9,843.0
End of year……………………………………………… 11,156.0 10,381.0
…
…
NIKE, INC., PROBLEM (Continued)
…
CHAPTER 17 Financial Statement Analysis
Fiscal Fiscal
2012 2011
m. Net income………………………………………………
…
$ 2,485.0 $ 2,223.0
2. Before reaching definitive conclusions, each measure should be compared with
past years, industry averages, and similar firms in the industry.
a. The working capital increased significantly between 2011 and 2012.
b. and c. The current and quick ratios both increased significantly during 2012.
h. The margin of protection to creditors remained decreased slightly. Overall, Nik
e
provides sound protection to its creditors.
i. These analyses indicate that the effectiveness in the use of assets to generate
revenues was very similar in both years.
earnings outpaced its growth in sales.
NIKE, INC., PROBLEM (Concluded)
…
CHAPTER 17 Financial Statement Analysis
CP 17–1
This position does not allow the shareholders to take advantage of leverage. As a
result, the return on shareholders’ equity cannot be improved by using debt. In
CP 17–2
Josh is concerned about the inventory and accounts receivable levels because he must
determine their value. Inventory that cannot be sold (or sold at a large discount) or
accounts receivable that cannot be collected must be written down to reflect their
CASES & PROJECTS
CHAPTER 17 Financial Statement Analysis
CP 17–3
Dell Inc. Apple Inc.
Sales 100.0% 100.0%
*
Rounded to the nearest tenth of a percent.
The common-sized analysis indicates that Dell and Apple are very different computer
companies. Dell’s income from operations was 5.3% of sales, while Apple’s was 35.3% o
f
sales. There is a 30 percentage point difference between the two companies. What
explains this difference? The gross profit for Dell was 21.4% of sales, which is fairly
are 14.2% of sales. Apple has larger research expenses as a percent of sales. It attempts
to sell a unique array of products to a wide audience. This requires significant research
and development. Dell’s R&D was 1.9% of sales, while Apple’s was 2.2% of
DELL INC. AND APPLE INC.
Common-Sized Statements
CHAPTER 17 Financial Statement Analysis
CP 17–4
$3,064.7
$6,821
Year 3: $3,064.7 – $0 $7.72
397
Net Income – Preferred Dividends
=
Shares of Common Stock Outstanding
44.9%
=
b.
c.
Earnings per Share
Year 3: =
Rate Earned on Total
Stockholders’ Equity
Net Income + Interest Expense
Average Total Assets
Year 3: $3,064.7 + $782.8
$52,237
=Net Income
Average Total Stockholders’ Equity
a.
= 7.4%
Rate Earned on Total Assets =
CP 17–4 (Continued)
$1.79
$1.52
$1.16
$61.18
$7.72
$6.71
$4.40
2.
Dividend per Share of Common Stock
1.9%
Earnings per Share
d.
=
Year 1:
Market Price per Share of Common Stock
=
Dividend Yield
Price-Earnings Ratio
=
Market Price per Share of Common Stock
Average Liabilities
Average Stockholders’ Equity
Ratio of Average Liabilities to Average
Stockholders’ Equity
e.
=
CHAPTER 17 Financial Statement Analysis
CP 17–4 (Concluded)
3. Deere & Co.’s profitability, as measured by earnings per share, has improved
significantly during the three-year period presented. The rates earned on total
assets and total stockholders’ equity have also improved significantly during this
CP 17–5
b.
$458
$1,364
c.
d.
$7,398
$1,585
Rate Earned on Total Assets
4.7
=Total Liabilities
Total Stockholders’ Equity
1.
Marriott: =
Ratio of Liabilities to
Stockholders’ Equity
a.
Number of Times Interest
Charges Are Earned
Marriott:
Rate Earned on
Stockholders’ Equity
=Net Income + Interest Expense
Average Total Assets
33.6%
=Net Income
Average Total Stockholders’ Equity
=
Interest Expense
=
Income Before Income Tax
+ Interest Expense
$180
Marriott: $551 + $180
4.1=
CHAPTER 17 Financial Statement Analysis
CP 17–5 (Concluded)
2. Marriott has a higher rate earned on total assets (7.5% vs. 1.7%), and a higher
rate on stockholders’ equity (33.6% vs. 1.3%), compared to Hyatt. Hyatt’s weaker
performance relative to Marriott appears to be due to its weak earnings relative
to its debt level. Hyatt has less leverage than Marriott. This is confirmed by the