Accounting: What the Numbers Mean
11th Edition
ISBN: 9781259535314
Author: David Marshall, Wayne William McManus, Daniel Viele
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 11, Problem 11.7E
Exercise 11.7
Effect of transactions on various financial ratios Indicate the effect that each transaction/event listed here will have on the financial ratio listed opposite it, and provide an explanation for your answer. Use + for increase, - for decrease, and (NE) for no effect. Assume that current assets exceed current liabilities in all cases, both before and after the transaction/event.
| Trans action/Event | Financial Ratio |
| a. Split the common stock 2 for l. | Book value per share of common stock |
| b. Collected accounts receivable. | Number of days’ sales in accounts receivable |
| c. Issued common stock for cash. | Total asset turnover |
| d. Sold |
Return on equity |
| e. Accrued interest on a note receivable. | |
| f. Sold inventory- on account. | Acid-test ratio |
| g. Wrote off an uncollectible account. | Accounts receivable turnover |
| h. Declared a cash dividend. | Dividend yield |
| i. Incurred operating expenses. | Margin |
| j. Sold equipment at a loss. | Earnings per share |
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Requirement 1. Compute
these ratios:
Working
Capital
Current
Debt-to-
Ratio
Cash Ratio
Debt Ratio Equity Ratio
Round ratios to two
14.44
212400
7.73
decimal places or
format as percentages or
Accounts
Days Sales
currency as appropriate.
Inventory
Days Sales in
Gross ProfitReceivable
in
Turnover
Inventory
Percentage
Turnover
Receivables
2019 Total Assets =
Rate of
Rate of
Asset
Return on
Return on
Turnover
Stockholders'
Earnings
Total Assets
Ratio
Equity
Per Share
2019 SHE =
Price/
Earnings
*Current Stock Price is
Dividend
$10.00 per share
Ratio*
Dividend Yield
Payout
Dividend per share=
Requirement 2. Based on
the ratios computed above,
analyze the company's
ability to pay its debts (both
current and long term).
Refer to at least 3 specific
ratios in your analysis.
Requirement 3: Based on
the ratios computed above,
analyze the company's
management of inventory.
Refer to at least 2 specific
ratios in your analysis.
Requirement 4: Based on
the ratios computed above,
analyze the company's…
12. Which two ratios multiplied by each other equal Return on Total Assets?
(A) Profit Margin
(B) Return on Equity
(C) Current Ratio
(D) Price Earnings Ratio
(E) Total Asset Turnover
36
Ratio Analysis - Explain how the following ratios are calculated and what the ratio indicates. Include how these ratios provide useful information related to accounting decision making topics such as efficiency (collecting amounts owed to the firm, using the assets well, getting items to market, etc.), liquidity (ability to pay current debts), solvency (ability to pay long term or all debts)
Asset Turnover
Return on Assets
Current Ratio
Accounts Receivable Turnover
Average Collection Period
Debt Ratio
Days’ sales in Inventory
Gross Profit Percentage
Return on Sales Ratio
Chapter 11 Solutions
Accounting: What the Numbers Mean
Ch. 11 - Prob. 11.1MECh. 11 - Calculate activity measures The following...Ch. 11 - Prob. 11.3MECh. 11 - Prob. 11.4MECh. 11 - Prob. 11.5ECh. 11 - Exercise 11.6 Obtain an annual report and discuss...Ch. 11 - Exercise 11.7 Effect of transactions on various...Ch. 11 - Prob. 11.8ECh. 11 - Prob. 11.9PCh. 11 - Problem 11.10 LQ 9 Prepare a common size balance...
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