i. Use the following simplified 2019 balance sheet to show, in general terms, how an improvement in one of the ratios—say, the DSO—would affect the stock price. For example, if the company could improve its collection procedures and thereby lower the DSO from 38.1 days to 27.8 days, how would that change “ripple through” the financial statements (shown in thousands below) and influence the stock price?Accounts receivable $ 402 Debt $ 965 Other current assets 888Net fixed assets 361 Equity 686. Total assets $1,651 Total liabilities and equity $1,651j. Although financial statement analysis can provide useful information about a company’s operations and its financial condition, this type of analysis does have some potential problems and limitations, and it must be used with care and judgment. What are some problems and limitations? Assignment 1Donna Jamison was recently hired a financial analyst by Computron Industries, a manufacturer ofelectronic components. Her first task was to conduct a financial analysis of the firm covering the last twoyears. To begin, she gathered the following financial statements and other data.Balance SheetsAssetsCashAccounts receivableInventoriesTotal current assetsGross fixed assetsLess accumulated depreciationNet fixed assetsTotal assetsLiabilities and EquityAccounts payableNotes payableAccrualsTotal current liabilitiesLong-term debtCommon stock (100,000 shares)Retained earningsTotal equityTotal liabilities and equity(continued)$201952,000402,000836,000$1,290,000527,000166,200$360,800$1,650.800$ 175,200225,000140,000$540,200424,612460,000225,988$ 685,988$1,650.800$201857,600351,200715,200$1,124,000491,000146,200$ 344,800$1,468,800$ 145,600200,000136,000$ 481,600323,432460,000203,768$ 663,768$1,468,800Income StatementsSalesCost of goods soldOther expensesDepreciationTotal operating costsEBITInterest expenseEBTTaxes (40%)Net incomeEPSStatement of Cash Flows (2019)Operating ActivitiesNet incomeOther additions (sources of cash)DepreciationIncrease in accounts payableIncrease in accrualsSubtractions (uses of cash)Increases in accounts receivableIncrease in inventoriesNet cash flow from operationsLong-Term Investing ActivitiesInvestment in fixed assetsFinancing ActivitiesIncrease in notes payableIncrease in long-term debtPayment of cash dividendsNet cash flow from financingNet reduction in cash accountCash at beginning of yearCash at end of year2019$3,850,000(3,250,000)(430,300)(20,000)$3,700,300$ 149,700( 76,000)$ 73,700(29,480)$ 44,220$0.442(continued)$ 44,22020,00029,6004,000(50,800)(120,800)$ 25,000101,180(22,000)2018$3,432,000(2,864,000)(340,000)(18,900)$3,222,900$ 209,100(62,500)$ 146,600( 58,640)$ 87,960$0.880$( 73,780)$( 36,000)$104,180$( 5,600)57,600$ 52,000Other DataDecember 31 stock priceNumber of sharesDividends per shareLease paymentsIndustry average data for 2019:RatioCurrentQuickInventory turnoverDays sales outstanding (DSO)Fixed assets turnoverTotal assets turnoverDebt ratioTIEFixed charge coverageNet profit marginROAROEPrice/earningsMarket/book2019$6.00100,000$ 0.22$40,0002018$8.50100,000$0.22$40,000Industry Average2.7x1.0x6.0x32.0 days10.7x2.6x50.0%2.5x2.1x3.5%9.1 %18.2%14.2x1.4x

Name: i. Use the following simplified 2019 balance sheet to show, in general
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Description: i. Use the following simplified 2019 balance sheet to show, in general terms, how an improvement in one of the ratios—say, the DSO—would affect the stock price. For example, if the company could improve its collection procedures and thereby lower the

The sales in 2019 is $3,850,000. Day sales outstanding is 32 days The sales per day in 2019 is…

Answered: i. Use the following simplified 2019…

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter13: Financial Statement Analysis

Section: Chapter Questions

Problem 13.1DC

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i. Use the following simplified 2019 balance sheet to show, in general terms, how an improvement in one
of the ratios—say, the DSO—would affect the stock price. For example, if the company could improve its
collection procedures and thereby lower the DSO from 38.1 days to 27.8 days, how would that change
“ripple through” the financial statements (shown in thousands below) and influence the stock price?

Accounts receivable $ 402 Debt $ 965 Other current assets 888

Net fixed assets 361 Equity 686. Total assets $1,651 Total liabilities and equity $1,651

j. Although financial statement analysis can provide useful information about a company’s operations and
its financial condition, this type of analysis does have some potential problems and limitations, and it
must be used with care and judgment. What are some problems and limitations?

Assignment 1
Donna Jamison was recently hired a financial analyst by Computron Industries, a manufacturer of
electronic components. Her first task was to conduct a financial analysis of the firm covering the last two
years. To begin, she gathered the following financial statements and other data.
Balance Sheets
Assets
Cash
Accounts receivable
Inventories
Total current assets
Gross fixed assets
Less accumulated depreciation
Net fixed assets
Total assets
Liabilities and Equity
Accounts payable
Notes payable
Accruals
Total current liabilities
Long-term debt
Common stock (100,000 shares)
Retained earnings
Total equity
Total liabilities and equity
(continued)
$
2019
52,000
402,000
836,000
$1,290,000
527,000
166,200
$360,800
$1,650.800
$ 175,200
225,000
140,000
$540,200
424,612
460,000
225,988
$ 685,988
$1,650.800
$
2018
57,600
351,200
715,200
$1,124,000
491,000
146,200
$ 344,800
$1,468,800
$ 145,600
200,000
136,000
$ 481,600
323,432
460,000
203,768
$ 663,768
$1,468,800
Income Statements
Sales
Cost of goods sold
Other expenses
Depreciation
Total operating costs
EBIT
Interest expense
EBT
Taxes (40%)
Net income
EPS
Statement of Cash Flows (2019)
Operating Activities
Net income
Other additions (sources of cash)
Depreciation
Increase in accounts payable
Increase in accruals
Subtractions (uses of cash)
Increases in accounts receivable
Increase in inventories
Net cash flow from operations
Long-Term Investing Activities
Investment in fixed assets
Financing Activities
Increase in notes payable
Increase in long-term debt
Payment of cash dividends
Net cash flow from financing
Net reduction in cash account
Cash at beginning of year
Cash at end of year
2019
$3,850,000
(3,250,000)
(430,300)
(20,000)
$3,700,300
$ 149,700
( 76,000)
$ 73,700
(29,480)
$ 44,220
$0.442
(continued)
$ 44,220
20,000
29,600
4,000
(50,800)
(120,800)
$ 25,000
101,180
(22,000)
2018
$3,432,000
(2,864,000)
(340,000)
(18,900)
$3,222,900
$ 209,100
(62,500)
$ 146,600
( 58,640)
$ 87,960
$0.880
$( 73,780)
$( 36,000)
$104,180
$( 5,600)
57,600
$ 52,000
Other Data
December 31 stock price
Number of shares
Dividends per share
Lease payments
Industry average data for 2019:
Ratio
Current
Quick
Inventory turnover
Days sales outstanding (DSO)
Fixed assets turnover
Total assets turnover
Debt ratio
TIE
Fixed charge coverage
Net profit margin
ROA
ROE
Price/earnings
Market/book
2019
$6.00
100,000
$ 0.22
$40,000
2018
$8.50
100,000
$0.22
$40,000
Industry Average
2.7x
1.0x
6.0x
32.0 days
10.7x
2.6x
50.0%
2.5x
2.1x
3.5%
9.1 %
18.2%
14.2x
1.4x

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