Week Five Exercise Assignment WITH DQ ASHFORD THIS IS FOR MARTIN

Week Five Exercise AssignmentFinancial 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$4,000Short-term investments3,0002,5002,000Accounts receivable2,0002,5003,000Inventory1,0002,5004,000Prepaid expenses800800800Accounts payable200200200Notes payable: short-term3,1003,1003,100Accrued payables300300300Long-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:      20X520X4Net credit sales$832,000 $760,000  Cost of goods sold530,000400,000 Cash, Dec. 31125,000110,000 Average Accounts receivable205,000156,000 Average Inventory70,00050,000 Accounts payable, Dec. 31115,000108,000   Instructionsa. 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$1,750,000 Interest expense120,000Income tax expense80,000Preferred dividends25,000Net income130,000Average assets1,200,000Average common stockholders’ equity500,000    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 and 20X2 financial statements follow. 
    20X2 20X1Current Assets $86,000 $80,000 Property, Plant, and Equipment (net) 99,00090,000Intangibles 25,00050,000Current Liabilities 40,80048,000Long-Term Liabilities 153,000160,000Stockholders’ Equity 16,20012,000Net Sales 500,000500,000Cost of Goods Sold 322,500350,000Operating Expenses 93,50085,000     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.  20X2 20X1Current Assets     $86,000     $80,000 Property, Plant, and Equipment (net) 99,000 80,000 Intangibles 25,000 50,000 Current Liabilities 40,800 48,000 Long-Term Liabilities      153,000      150,000 Stockholders’ Equity 16,200 12,000 Net Sales     500,000      500,000 Cost of Goods Sold     322,500      350,000 Operating Expenses       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 COMPANYComparative Balance SheetsDecember 31, 20X2 and 20X1 ($000 Omitted)20X2 20X1Assets Current Assets Cash and Short-Term Investments $400  $600 Accounts Receivable (net) 3,000 2,400Inventories 3,000 2,300Total Current Assets $6,400  $5,300 Property, Plant, and Equipment Land $1,700  $500 Buildings and Equipment (net) 1,500 1,000Total Property, Plant, and Equipment $3,200  $1,500 Total Assets $9,600  $6,800 Liabilities and Stockholders’ Equity Current Liabilities Accounts Payable $2,800  $1,700 Notes Payable 1,100 1,900Total Current Liabilities $3,900  $3,600 Long-Term Liabilities Bonds Payable 4,100 2,100Total Liabilities $8,000  $5,700 Stockholders’ Equity Common Stock $200  $200 Retained Earnings 1,400 900Total Stockholders’ Equity $1,600  $1,100    Total Liabilities and Stockholders’ Equity $9,600  $6,800         LONE PINE COMPANYStatement of Income and Retained EarningsFor the Year Ending December 31,20X2 ($000 Omitted)Net Sales*  $36,000  Less: Cost of Goods Sold $20,000   Selling Expense 6,000  Administrative Expense 4,000  Interest Expense 400  Income Tax Expense 2,00032,400 Net Income  $3,600  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 
 DQ’S
Ratios Ratios provide the users of financial statements with a great deal of information about the entity.  Do ratios tell the whole story?  How could liquidity ratios be used by investors to determine whether or not to invest in a company?    Guided Response:Let at least two of your peers know how debt service ratios can be used by a lender in determining whether or not to lend money to a company.  Profit Margin  Year Ending December 2012Year Ending December 2011Year Ending December 2010Revenues40,00035,00033,000Operating Expenses   Salaries15,00010,0009,000Maintenance and Repairs6,0009,00010,000Rental Expense2,5002,5002,500Depreciation2,0002,0002,000Fuel4,0003,5002,500Total Operating Expenses29,50027,00026,000Operating Income10,5008,0007,000Sales and Administrative Expenses6,0004,0003,000Interest Expense2,5002,0001,000Net Income2,0002,0003,000Above 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.