Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:

ACC205 WEEK 5

1. Liquidity ratios. E

dison

,

Stagg

, and

Thornton

have the following financial information at the close of business on July 10:

disonStaggThornton

 

2,500

 

2,0002,5003,000 

1,0002,5004,000 

800800 

200200 

3,1003,100 

300300 

3,8003,800 

       

Cash	$	4,000	$			2,500	$	1,000
Short-term investments		3,000		2,000
Accounts receivable
Inventory
Prepaid expenses			800
Accounts payable			200
Notes payable: short-term			3,100
Accrued payables			300
Long-term liabilities			3,800

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:

Compute the accounts receivable and inventory turnover ratios for 19X5. 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 19X7:

1. Compute the gross profit margin ratio, the return on equity and the return on assets, rounding calculations to two decimal places.
2. 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 and 20X2 financial statements follow.

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.

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.

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

j. Dividend payout rate

7. Profit Margin. Below is a comparative income statement for Cecil, Inc. for the years 2010, 2011, and 2012. Calculate the profit margin for each of these years. Comment on the profit margin trend. What changes would you recommend to improve the net margin of the company?

 

8. Reflect for a moment on the ratios (working capital, current ratio, quick ratio, debt to asset, debt to equity, times interest earned, gross margin and net margin) presented above. If you were considering investing in a company what ratio would be the most important to you? Formulate and argument to defend your position.