Financial Accounting, Student Value Edition (5th Edition)
5th Edition
ISBN: 9780134728520
Author: Robert Kemp, Jeffrey Waybright
Publisher: PEARSON
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Textbook Question
Chapter 12, Problem 41BP
Calculating various ratios for analysis (Learning Objectives 2 & 3) 20-25 min.
Assume you are purchasing an investment and decide to invest in a company in the home remodeling business. You narrow the choice to Skyview, Inc., or Vista Corp. You assemble the following data. Assume all sales are on credit.
Selected income statement data for the current year:
| Skyview, Inc.. | Vista, Corp. | |
| Net Sales………….. | $421,000 | $400,000 |
| Cost of Goods Sold . | 238,000 | 202,000 |
| EBIT....................... | 177, 000 | 162,000 15,000 |
| interest Expense..... | 13,000 | |
| Net Income………… | 119,000 | 106,000 |
Selected balance sheet and market price data at the end of the current year
| Skyview, Inc.. | Vista, Corp. | |
| Current Assets: Cash...................... |
$13,000 | $ 27,000 |
| Short-Term Investments……………… | 40,000 | 29,000 |
| 48,000 | 34,000 | |
| Inventory……………………………… | 131,000 | 136,000 |
| Prepaid Expenses................................... | 8,500 | 10,003 |
| Total Current Assets…………………… | 240,500 | 236,000 |
| Total Assets…………………………… | 359,000 | 355,000 |
| Total Current Liabilities………………… | 57,000 | 70,000 |
| Total Liabilities...................... | 185,000 | 200,000 |
| Common Stock $1.00 Par, 11,000 Shares… | 11,000 | |
| $2.00 Par, 10,000 Shares… | 20,000 | |
| Total Stockholder’s Equity………………. | 174,000 | 165,000 |
| Market price per share of common stock….. | $ 58 | $ 50 |
Selected balance sheet data at the beginning of the current year
| Skyview, Inc.. | Vista, Corp. | |
| Accounts Receivable, Net…………….. | $39,000 | $51,000 |
| Inventory……………………………… | 135,000 | 128,000 |
| Total Assets........................................................... | 288,000 | 353,000 |
| Common Stock $1.00 Par, 11,000 Shares…………… | 11,000 | |
| $2.00 Par, 10,000 Shares… | 20,000 | |
| Total Stockholder’s Equity………………………. | 157,000 | 154,000 |
Your investment strategy is to purchase the stock of the company that has a low price-earnings ratio but seems to be in good shape financially. Assume that you analyzed all other factors and your decision depends on the results of the ratio analysis to be performed.
Requirement
1 Compute the following ratios for both companies for the current year and decide which company’s stock belt fits your investment strategy.
- a. Quick ratio
- b. Debt ratio
- c. interest coverage ratio
- d. Accounts receivable turnover
- e. Inventory turnover
- f. Total asset turnover
- g. Return on assets
- h. Return on equity
- i. Earnings per share
- j. Price-earnings ratio
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Assume that you are purchasing an investment and have decided to invest in a company in the digital phone business. You have narrowed the choice to
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LOADING...
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Selected income statement data for the current year:
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OBJECTIVE: To enable learners to utilize financial ratios as a mechanism to evaluate the firm's financial
performance and identify areas for making decisions for improvement
REQUIREMENT: Financial Statement Analysis
Question
Refer to the following financial statements of Delima Corporation for 2019 and 2020:
Delima Corporation
Income Statements
For the year ended 31 December (in millions)
2020
$13,198
7,750
2019
$12,397
7,108
Net sales
Cost of goods sold
Gross profit
Selling and administrative expenses
Income from operations
5,448
5,289
3,472
3,299
1,976
1,990
Interest expense
233
248
Other (income) expense, net
11
1,732
503
1,229
Income before income taxes
1,742
Income tax expense
502
Net income
1,240
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2019
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$460
$444
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1,132
1,190
1,056
225
2,915
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1. Using the data in the student spreadsheet file Ethan Allen Financials.xlsx forecast the 2019 income statement and balance sheet for Ethan Allen. Use the percent of sales method and the following assumptions: (1) sales in FY 2019 will be $797.3359; (2) the tax rate will be 35%; (3) each item that changes with sales will be the five-year average percentage of sales; (4) net fixed assets will increase to $300; and (5) the common dividend will be $0.75 per share. Use your judgment on all other items. a. What is the discretionary financing needed in 2019? Is this a surplus or deficit? b. Assume that the DFN will be absorbed by long-term debt and that the interest rate is 4% of LTD. Set up an iterative worksheet to eliminate it.
Chapter 12 Solutions
Financial Accounting, Student Value Edition (5th Edition)
Ch. 12 - Prob. 1DQCh. 12 - Which amount is the base amount for vertical...Ch. 12 - Prob. 3DQCh. 12 - Prob. 4DQCh. 12 - Prob. 5DQCh. 12 - Prob. 6DQCh. 12 - Prob. 7DQCh. 12 - How would you expect a recession to affect asset...Ch. 12 - Prob. 9DQCh. 12 - Prob. 10DQ
Ch. 12 - Prob. 1SCCh. 12 - Prob. 2SCCh. 12 - Prob. 3SCCh. 12 - Prob. 4SCCh. 12 - Prob. 5SCCh. 12 - Prob. 6SCCh. 12 - Prob. 7SCCh. 12 - Prob. 8SCCh. 12 - Prob. 9SCCh. 12 - Prob. 10SCCh. 12 - Prob. 11SCCh. 12 - Prob. 12SCCh. 12 - Prob. 1SECh. 12 - Prob. 2SECh. 12 - Prob. 3SECh. 12 - Prob. 4SECh. 12 - Prob. 5SECh. 12 - Prob. 6SECh. 12 - Prob. 7SECh. 12 - Prob. 8SECh. 12 - Prob. 9SECh. 12 - Prob. 10SECh. 12 - Horizontal analysis(Learning Objective 2)15-20 min...Ch. 12 - Prob. 12AECh. 12 - Horizontal analysis(Learning Objective 2)15-20...Ch. 12 - Prob. 14AECh. 12 - Prob. 15AECh. 12 - Prob. 16AECh. 12 - Prob. 17AECh. 12 - Horizontal analysis(Learning Objective 2)15-20...Ch. 12 - Prob. 26BECh. 12 - Prob. 27BECh. 12 - Prob. 28BECh. 12 - Prob. 29BECh. 12 - Prob. 30BECh. 12 - Trend percentages and return on assets (Learning...Ch. 12 - Common-size financial statements and profitability...Ch. 12 - Current ratio, debt ratio, EPS (Learning Objective...Ch. 12 - Calculating various ratios for analysis (Learning...Ch. 12 - Prob. 35APCh. 12 - Prob. 36APCh. 12 - Trend percentages and return on assets (Learning...Ch. 12 - Common-size financial statements and profitability...Ch. 12 - Prob. 39BPCh. 12 - Calculating various ratios for analysis(Learning...Ch. 12 - Calculating various ratios for analysis (Learning...Ch. 12 - Prob. 42BPCh. 12 - Prob. 1CECh. 12 - Prob. 1CPCh. 12 - Prob. 1EIACh. 12 - Prob. 2EIACh. 12 - Prob. 1FACh. 12 - Industry Analysis Purpose: To help you understand...Ch. 12 - Prob. 1SBACh. 12 - Prob. 1WC
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