Requirement 1:
Determine the return on common equity ratio of Company H for 2013.
Requirement 1:
Explanation of Solution
Determine the return on common equity ratio of Company H for 2013.
Step 1: Calculate the average total common stockholders’ equity.
Average total commonstockholders’ equity} ={[Total common stockholders' equity, ending+Total common stockholders' equity, beginning+]2}={[$1,616.1million+$1,048.4million]2}=$2,664.52=$1,332.25 million
Step 2: Calculate the return on common equity ratio of C&C Incorporation for 2013.
Return on common equity = Net incomeAverage total common stocholders' equity=$820.5 million$1,332.25 million=0.616
Hence, the return on common equity ratio of Company H for 2013 is 0.616.
Comment:
Return on common equity ratio indicates that Company H generated a 61.6% return for its common shareholders.
Requirement 2:
Determine the debt-to-assets ratio of Company H for 2013.
Requirement 2:
Explanation of Solution
Determine the debt-to-assets ratio of Company H for 2013.
Debt-to-assets ratio = Total liabilitiesTotal assets=$3,741.4 million$5,357.5 million=0.698
Hence, the debt-to-assets ratio of Company H for 2013 is 0.698.
Comment:
Debt-to-assets ratio indicates that Company H’s 69.8% of total assets are financed by its creditors.
Requirement 3:
Determine the debt-to-equity ratio of Company H for 2013.
Requirement 3:
Explanation of Solution
Determine the debt-to-equity ratio of Company H for 2013.
Debt-to-equity ratio = Total liabilitiesTotal common stocholders' equity=$3,741.4million$1,616.1 million=2.32
Hence, the debt-to- equity ratio of Company H for 2013 is 2.32.
Comment:
Debt-to-assets ratio indicates that Company H has $2.32 in total liabilities for every of $1.00 in equity.
Requirement 4:
Determine the
Requirement 4:
Explanation of Solution
Determine the current ratio of Company H for 2013.
Current ratio = Current assetsCurrent liabilities=$2,487.3 million$1,408.0 million=1.77
Hence, the current ratio of Company H for 2013 is 1.77.
Comment:
Current ratio indicates that Company H has $1.77 in current assets for every of $1.00 in current liabilities.
Requirement 5:
Determine the quick ratio of Company H for 2013.
Requirement 5:
Explanation of Solution
Determine the quick ratio of Company H for 2013.
Quick ratio = Quick assetsCurrent liabilities=[Cash and cash equivalents +Recceivables]Current liabilities=[$1,118.5 million+$477.9million]$1,408.0million=1.13
Hence, the quick ratio of Company H for 2013 is 1.13.
Comment:
Quick ratio indicates that Company H has $1.13 in quick assets (cash and receivables) for every of $1.00 in current liabilities.
Requirement 6:
Determine the inventory turnover in days of Company H for 2013.
Requirement 6:
Explanation of Solution
Determine the inventory turnover in days of Company H for 2013.
Step 1: Calculate the average inventory.
Average inventory=(Ending inventory +Beinning inventory2)=($659.5million + $633.3million2)=($1,292.82)=$646.4 million
Step 2: Calculate the inventory turnover.
Inventory turnover= [Cost of goods soldAverage inventory]=$3,865.2 million$646.4 million=5.979 times
Step 3: Calculate the inventory turnover in days of C&C Incorporation for 2013.
Inventory turnover days = 365 daysInventory turnover=3655.979 times=61days
Hence, the inventory turnover days of Company H for 2013 are 61 days.
Comment:
On an average Company H takes 61 days to convert inventory into sales in the operation cycle.
Requirement 7:
Determine the
Requirement 7:
Explanation of Solution
Determine the accounts receivable turnover in days of Company H for 2013.
Step 1: Calculate the average accounts receivable.
Average accounts receivable =(Ending accounts receivable +Beinning accounts receivable2)=($477.9million +$461.4million2)=($939.32)=$469.65 million
Step 2: Calculate the accounts receivable turnover.
Accounts receivable turnover= Total credit salesAverage accounts receivable=$7,146.1 million$469.65 million=15.21 times
Step 3: Calculate the accounts receivable turnover in days of C&C Incorporation for 2013.
Accounts receivable turnover days = 365 daysAccounts receivable turnover=365 days15.21 times=24 days
Hence, the accounts receivable turnover days of Company H for 2013 are 24 days.
Comment:
On an average Company H takes 24 days to collect its receivables from its customers.
Requirement 8:
Determine the accounts payable turnover in days of Company H for 2013.
Requirement 8:
Explanation of Solution
Determine the accounts payable turnover in days of Company H for 2013.
Step 1: Determine the amount of inventory purchases.
Inventory purchases = Cost of goods sold + Change in inventory=Cost of goods sold +(Ending inventory− Beginning inventory)=$3,865.2 million +($659.5million−$633.3million)=$3,891.4million
Step 2: Calculate the average accounts payable.
Average accounts payable =(Ending accounts receivable +Beginning accounts receivable2)=($461.5million +$442.0million2)=$903.52=$451.75 million
Step 3: Calculate the accounts payable turnover.
Accounts payable turnover = [Inventory purchasesAverage accounts receivable]=[$3,891.4 million$451.75 million]=8.61 times
Step 4: Determine the accounts payable turnover in days.
Accounts payable turnover days = 365 daysAccounts payable turnover =365 days8.61 times=42days
Hence, the accounts payable turnover in days of Company H for 2013 is 42 days.
Comment:
On an average Company H takes 42 days to pay its payables to its suppliers.
Requirement 9:
Determine the operating cycle in days of Company H for 2013.
Requirement 9:
Explanation of Solution
Determine the operating cycle in days of Company H for 2013.
Operating cycle(in days) = [Inventory turnover days+Accounts receivable turnover days− Accounts payables turnover days]=61days +24days−42days=43days
Hence, the operating cycle in days of Company H for 2013 is 43 days.
Comment:
Company H takes 43days to complete an operating cycle (the purchase of inventory and collection of cash from accounts receivable).
Requirement 10:
Determine the total assets turnover ratio of Company H for 2013.
Requirement 10:
Explanation of Solution
Determine the total assets turnover ratio of Company H for 2013:
Step 1: Calculate average total assets.
Average total assets =[(Beginning total assets+Ending total assets)2]=[($5,357.5million+$4,754.8million)2]=($10,112.32)=$5,056.15 million
Step 2: Calculate the total assets turnover ratio of C&C Incorporation for 2013.
Total assets turnover ratio = Total revenuesAverage total assets=$7,146.1million$5,056.15 million=1.41
Hence, the total assets turnover ratio of Company H for 2013 is 1.41.
Comment:
Total assets turnover ratio indicates that Company H has generated $1.41 in sales for every of $1.00 in assets.
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Chapter 4 Solutions
Intermediate Accounting: Reporting and Analysis
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