Financial Accounting
Financial Accounting
10th Edition
ISBN: 9781260481563
Author: Libby, Robert
Publisher: MCGRAW-HILL HIGHER EDUCATION
Question
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Chapter 13, Problem 4P

1.

To determine

Compute Ratios for the given companies using the given financial statements.

1.

Expert Solution
Check Mark

Explanation of Solution

Calculate the ratios for Company BW

RatioFormulaCalculationResult
Profitability ratios
Return on Equity (ROE)NetIncomeAverageTotalStockholder'Equity$45,000($148,000+$29,000+$61,000)18.91%
Return on Assets (ROA)NetIncomeAverageTotalAssets$45,000$402,00011.19%
Gross profit percentageGross ProfitNet Sales Revenue($447,000$241,00)$447,0007.72%
Net profit marginNetIncomeNet Sales Revenue$45,000$447,00010.07%
Earnings per share (EPS)NetIncome(Weighted Average Number of common Shares Outstanding)$45,000($148,000÷$10per Share)$3.04
Total asset turnoverNetSalesRevenueAverageTotalAssets$447,000$402,0001.11
Fixed asset turnoverNetSalesRevenueAverageNetFixedAssets$447,000$140,0003.19
Receivables turnover Net CreditSalesAverageNet Receivables$149,000$38,0003.92
Inventory turnoverCost of Goods SoldAverage Inventory$241,000$99,0002.43
Liquidity ratios
Current ratioCurrentAssetsCurrentLiabilities($41,000 + $38,000 + $99,000)$99,0001.8
Quick ratioQuickAssetsCurrentLiabilities($41,000 + $38,000)$99,0000.8
Cash ratioCash & Cash EquivalentsCurrentLiabilities$41,000$99,0000.41
Solvency ratio
Debt-to-equity ratioTotalLiabilitiesTotalStockholder'sEquity($99,000 + $65,000)($148,000+$29,000+$61,000)0.69
Market ratios
Price/Earnings (P/E) ratioMarket Price per ShareEarningsper Share$22$3.047.24
Dividend yield ratioDividend per Share Market Price per Share($33,000÷14,800Shares)$2210.14%

Table (1)

Calculate the ratios for Company PF

RatioFormulaCalculationResult
Profitability ratios
Return on Equity (ROE)NetIncomeAverageTotalStockholder'Equity$91,000($512,000+$106,000+$71,000)13.21%
Return on Assets (ROA)NetIncomeAverageTotalAssets$91,000$798,00011.40%
Gross profit percentageGross ProfitNet Sales Revenue($802,000$400,00)$802,00050.13%
Net profit marginNetIncomeNet Sales Revenue$91,000$802,00011.35%
Earnings per share (EPS)NetIncome(Weighted Average Number of common Shares Outstanding)$91,000($512,000÷$10per Share)$1.78
Total asset turnoverNetSalesRevenueAverageTotalAssets$802,000$798,0001.01
Fixed asset turnoverNetSalesRevenueAverageNetFixedAssets$802,000$401,0002.0
Receivables turnover Net CreditSalesAverageNet Receivables$267,333$31,0008.62
Inventory turnoverCost of Goods SoldAverage Inventory$400,000$40,00010.00
Liquidity ratios
Current ratioCurrentAssetsCurrentLiabilities($21,000+$31,000+$40,000)$49,0001.88
Quick ratioQuickAssetsCurrentLiabilities($21,000 + $31,000)$49,0001.06
Cash ratioCash & Cash EquivalentsCurrentLiabilities$21,000$49,0000.43
Solvency ratio
Debt-to-equity ratioTotalLiabilitiesTotalStockholder'sEquity($49,000+$60,000)($512,000+$106,000+$71,000)0.16
Market ratios
Price/Earnings (P/E) ratioMarket Price per ShareEarningsper Share$15($91,000÷51,200 shares)8.43
Dividend yield ratioDividend per Share Market Price per Share($148,000÷51,200 shares)$1519.27%

Table (2)

2.

To determine

Identify the company that is more efficient at collecting its accounts receivables and turning over its inventory.

2.

Expert Solution
Check Mark

Answer to Problem 4P

Company PF is the more efficient at collecting its accounts receivables and turning over its inventory.

Explanation of Solution

Company BW collecting its accounts receivable at 3.92 times a year and turns over its inventory 2.43 times a year. Whereas company PF is collecting its account receivables at 8.62 times a year and turns over its inventory 10 times a year.

Hence, Company PF is more efficient at collecting its accounts receivables and turning over its inventory.

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Chapter 13 Solutions

Financial Accounting

Ch. 13 - Prob. 11QCh. 13 - 12. Explain how a company’s accounting policy...Ch. 13 - 13. Explain why rapid growth in total sales might...Ch. 13 - 1. A company has total assets of $500,000 and...Ch. 13 - Prob. 2MCQCh. 13 - 3. Which of the following ratios is used to...Ch. 13 - The two components of the return on asset ratio...Ch. 13 - Which of the following ratios is required by...Ch. 13 - 6. A company has quick assets of $300,000 and...Ch. 13 - 7. The inventory turnover ratio for Natural Foods...Ch. 13 - 8. Given the following ratios for four companies,...Ch. 13 - 9. A decrease in selling and administrative...Ch. 13 - 10. A creditor is least likely to use what ratio...Ch. 13 - M13-1 Inferring Financial Information Using...Ch. 13 - Inferring Financial Information Using Component...Ch. 13 - Computing the Return on Equity Ratio Compute the...Ch. 13 - Computing the Return on Asset Ratio Compute the...Ch. 13 - Analyzing the Inventory Turnover Ratio A...Ch. 13 - Prob. 6MECh. 13 - Analyzing Financial Relationships Ramesh Company...Ch. 13 - Prob. 8MECh. 13 - Inferring Financial Information Using a Ratio...Ch. 13 - Analyzing the Impact of Accounting...Ch. 13 - E13-1 Using Financial Information to Identify...Ch. 13 - E13-2 Using Financial Information to Identify...Ch. 13 - E13-2 Using Financial Information to Identify...Ch. 13 - Using Financial Information to Identify...Ch. 13 - Prob. 5ECh. 13 - Matching Each Ratio with Its Computational...Ch. 13 - Computing Turnover Ratios Procter & Gamble is a...Ch. 13 - Computing Turnover Ratios | Sales for the year for...Ch. 13 - Analyzing the Impact of Selected Transactions on...Ch. 13 - Analyzing the Impact of Selected Transactions on...Ch. 13 - Inferring Financial Information from Ratios Dollar...Ch. 13 - Prob. 12ECh. 13 - Prob. 13ECh. 13 - Analyzing Ratios Company X and Company Y are two...Ch. 13 - Analyzing an Investment by Comparing Selected...Ch. 13 - Prob. 3PCh. 13 - Prob. 4PCh. 13 - Prob. 5PCh. 13 - Computing Comparative Financial Statements and ROA...Ch. 13 - Prob. 7PCh. 13 - Analyzing the Impact of Alternative Inventory...Ch. 13 - Prob. 9PCh. 13 - Coca-Cola and PepsiCo are well-known international...Ch. 13 - Prob. 2APCh. 13 - Calculating Profitability, Turnover, Liquidity,...Ch. 13 - Prob. 4APCh. 13 - Prob. 5APCh. 13 - Computing Comparative Financial Statements and ROA...Ch. 13 - Prob. 1CPCh. 13 - Prob. 2CPCh. 13 - Prob. 3CPCh. 13 - Prob. 4CPCh. 13 - Inferring Information from the Two Components of...Ch. 13 - Prob. 6CP
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