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
a. 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
,000
Cash, Dec. 31
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$1,750,000Interest expense120,000Income tax expense
80,000
Preferred dividends25,000Net income130,000Average assets1,200,000Average common stockholders’ equity
500,000
a. Compute the profit margin on sales ratio, the return on equity and the return on assets, rounding calculations to two decimal places.
b. 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 |
|
153,000 |
150,000 |
|
|
500,000 |
500,000 |
|
|
322,500 |
350,000 |
|
|
93,500 |
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
