USA: +1(669)289-8683 
Sign in
Week Five Exercise Assignment
Financial Ratios
1.
Liquidity ratios. Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:
EdisonStaggThorntonCash$
6,000
$5,000$
4,000
Short-term investments
3,000
2,500
2,000
Accounts receivable2,0002,5003,000 Inventory
1,000
2,5004,000 Prepaid expenses800800800 Accounts payable200200200 Notes payable: short-term3,1003,1003,100 Accrued payables300300300 Long-term liabilities3,8003,8003,800
- Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most liquid? Why?
|
2. Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc: |
|||
|
20X5 |
20X4 |
||
|
Net credit sales |
$832,000 |
$760,000 |
|
|
Cost of goods sold |
530,000 |
400 |
|
|
Cash, Dec. 31 |
1 |
25,000 |
110,000 |
|
Average Accounts receivable |
205,000 |
156,000 |
|
|
Average Inventory |
70,000 |
50,000 |
|
|
Accounts payable, Dec. 31 |
115,000 |
108,000 |
|
|
Instructions a. Compute the accounts receivable and inventory turnover ratios for 20X5. Alaska rounds all calculations to two decimal places. |
3. Profitability ratios, trading on the equity. Digital Relay has both preferred and common stock outstanding. The company reported the following information for 20X7:
Net sales$1,7
50,000
Interest expense120,000Income tax expense80,000Preferred dividends25,000Net income130,000Average assets1,200,000Average common stockholders’ equity
500,000
- Compute the profit margin on sales ratio, the return on equity and the return on assets, rounding calculations to two decimal places.
- Does the firm have positive or negative financial leverage? Briefly explain.
| 4. Horizontal analysis. Mary Lynn Corporation has been operating for several years. Selected data from the |
20X1 |
20X2 |
||||
| Current |
Assets |
$86,000 |
$ |
80,000 |
||
|
Property, Plant, and Equipment |
99,000 |
90,000 |
||||
|
Intangibles |
||||||
|
Current Liabilities |
40,800 |
48,000 |
||||
|
Long-Term Liabilities |
153,000 |
160,000 |
||||
|
Stockholders’ Equity |
16,200 |
12,000 |
||||
|
Net Sales |
||||||
|
Cost of Goods Sold |
322,500 |
350,000 |
||||
|
Operating Expenses |
93,500 |
85,000 |
||||
|
a. Prepare a horizontal analysis for 20X1 and 20X2. Briefly comment on the results of your work. |
5.Vertical analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow.
|
Current Assets |
$86,000 |
$80,000 |
|
99,000 |
||
|
25,000 |
||
|
40,800 |
48,000 |
|
|
153,000 |
150,000 |
|
|
16,200 |
12,000 |
|
|
500,000 |
500,000 |
|
|
322,500 |
350,000 |
|
|
93,500 |
85,000 |
a. Prepare a vertical analysis for 20X1 and 20X2. Briefly comment on the results of your work.
|
6. Ratio computation. The financial statements of the Lone Pine Company follow. |
||||
|
LONE PINE COMPANY |
||||
|
Comparative Balance Sheets |
||||
|
December 31, 20X2 and 20X1 ($000 Omitted) |
||||
|
Cash and Short-Term Investments |
$400 |
$600 |
||
|
Accounts Receivable (net) |
2,400 |
|||
|
Inventories |
2,300 |
|||
|
Total Current Assets |
$6,400 |
$5,300 |
||
|
Land |
$1,700 |
$500 |
||
|
Buildings and Equipment (net) |
1,500 |
|||
|
Total Property, Plant, and Equipment |
$3,200 |
$1,500 |
||
|
Total Assets |
$9,600 |
$6,800 |
||
|
Liabilities and Stockholders’ Equity |
||||
|
Accounts Payable |
$2,800 |
|||
|
Notes Payable |
1,100 |
1, |
900 |
|
|
Total Current Liabilities |
$3,900 |
$3,600 |
||
|
Bonds Payable |
4,100 |
2,100 |
||
|
Total Liabilities |
$8,000 |
$5,700 |
||
|
Common Stock |
$200 |
|||
|
Retained Earnings |
1,400 |
|||
|
Total Stockholders’ Equity |
$1,600 |
$1,100 |
||
|
Total Liabilities and Stockholders’ Equity |
||||
|
Statement of Income and Retained Earnings |
||||
|
For the Year Ending December 31,20X2 ($000 Omitted) |
||||
|
Net Sales* |
$36,000 |
|||
|
Less: Cost of Goods Sold |
$20,000 |
|||
|
Selling Expense |
||||
|
Administrative Expense |
||||
|
Interest Expense |
||||
|
Income Tax Expense |
32,400 |
|||
|
Net Income |
||||
|
Retained Earnings, Jan. 1 |
900 |
|||
|
Ending Retained Earnings |
$4,500 |
|||
|
Cash Dividends Declared and Paid |
3,100 |
|||
|
Retained Earnings, Dec. 31 |
$1,400 |
|||
|
*All sales are on account. |
Instructions
Compute the following items for Lone Pine Company for 20X2, rounding all calculations to two decimal places when necessary:
a. Quick ratio
b. Current ratio
c. Inventory-turnover ratio
d. Accounts-receivable-turnover ratio
e. Return-on-assets ratio
f. Net-profit-margin ratio
g. Return-on-common-stockholders’ equity
h. Debt-to-total assets
i. Number of times that interest is earned
