current year and preceding year High or low - a higher ratio is favored because it implies that the company is efficient in generating sales or revenues from its asset base Accounts receivable turnover 13.6 days Net Income : an entity's income minus cost of goods sold, expenses, depreciation and amortization, interest, and taxes for an accounting period High or low - if your net income is significantly lower than your total revenue, you may want to start cutting back on some operating costs Net sales $229,234 0.66 Average total assets $348,503 Total Liabilities : the combined debts that an individual or company owes High or low - if a company has relatively low total liabilities, it may gain favorable interest rates on any new debt it undertakes from lenders, as lower total liabilities lessen the chance of default risk Net income Average total assets $48,351 $348,503 13.9% Intrest Expense : the cost of borrowing money, the price that a lender charges a borrower for the use of the lender's money High or low - a higher interest expense means that the company is paying more to its debtors. In general, a company's capital structure with a heavier debt focus will have higher interest expenses Total Liabilities $241,272 64.3% Div. Per share of commons stock : the sum of declared dividends issued by a company for every ordinary share outstanding High or low - Dividends are usually issued by mature companies that have achieved steady growth. Smaller companies that are still growing will usually reinvest profits back into their operations, which can result in higher earnings for corporations and higher share prices for the investor. Total Assets $375,319 $61,765 $2,323 Market Price per share of common stock : the most recent price that a stock has traded for High or low - this should be high to make sd much money as possible off each stock Net income + interest expense + income tax expense 26.6 interest expense Net income - preffered dividends : the cash dividends that a company pays out to its preferred shareholders High or low - One benefit of preferred stock is that it typically pays higher dividend rates than common stock of the same company Dividend per share of common stock Market price per share of common stock $2.40 $8.34 28.8% Average common stock holders equity : calculated by adding common shareholders' equity at the beginning of the year to common shareholders' equity at year's end and dividing that sum by two Hinh or ow-a hinher return on common stockholdere' eguity ratio indicates hinh nrofitahility and strong financial

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

I submitted this for my accounting final, I dont need any help on the ratios they are all correct but I have to fix the explainations on the right had side.

The requirment is listed as " Provide 2 statements for each ratio.  FIRST A GENERIC DESCRIPTION OF WHAT THE RATIO MEANS.  SECOND WHETHER OR NOT A HIGHER OR LOWER RATIO IS PREFERABLE (or what it depends on). "

Here were he notes from my professor after my submission (the attached picture is what I submitted)

"You talked about the numerator of a ratio and then separately about the denominator.  I want one generic phrase about the entire ratio such as:
The current ratio is a measure of the short term
liquidity of a company.  Higher is better."
Average Net Accounts Receivable : multi-period average of accounts receivable ending balances, netted
against the average allowance for doubtful accounts for the same periods
High or low - A high ratio is desirable, as it indicates that the company's collection of accounts receivable is
frequent and efficient
Average net accounts receivable
$16,814
365 days
365
27
Average Total Assets : average amount of assets recorded on a company's balance sheet at the end of the
current year and preceding year
Accounts receivable turnover
13.6
days
High or low - a higher ratio is favored because it implies that the company is efficient in generating sales or
revenues from its asset base
Net Income : an entity's income minus cost of goods sold, expenses, depreciation and amortization, interest,
and taxes for an accounting period
Net sales
$229,234
0.66
High or low - if your net income is significantly lower than your total revenue, you may want to start cutting back
on some operating costs
Average total assets
$348,503
Total Liabilities : the combined debts that an individual or company owes
High or low - if a company has relatively low total liabilities, it may gain favorable interest rates on any new debt it
undertakes from lenders, as lower total liabilities lessen the chance of default risk
$48,351
$348,503
Net income
13.9%
Average total assets
Intrest Expense : the cost of borrowing money, the price that a lender charges a borrower for the use of the
lender's money
High or low - a higher interest expense means that the company is paying more to its debtors. In general, a
company's capital structure with a heavier debt focus will have higher interest expenses
Total Liabilities
$241,272
64.3%
Div. Per share of commons stock : the sum of declared dividends issued by a company for every ordinary
share outstanding
Total Assets
$375,319
High or low - Dividends are usually issued by mature companies that have achieved steady growth. Smaller
companies that are still growing will usually reinvest profits back into their operations, which can result in higher
earnings for corporations and higher share prices for the investor.
Net income + interest expense + income tax expense
Market Price per share of common stock : the most recent price that a stock has traded for
$61,765
$2,323
26.6
interest expense
High or low - this should be high to make sd much money as possible off each stock
Net income - preffered dividends : the cash dividends that a company pays out to its preferred shareholders
High or low - One benefit of preferred stock is that it typically pays higher dividend rates than common stock of
the same company
Dividend per share of common stock
$2.40
$8.34
28.8%
Market price per share of common stock
Average common stock holders equity : calculated by adding common shareholders' equity at the beginning
of the year to common shareholders' equity at year's end and dividing that sum by two
Hiah or low - a higher return on common stockholders'eauity ratio indicates hiah profitability and strona financial
Transcribed Image Text:Average Net Accounts Receivable : multi-period average of accounts receivable ending balances, netted against the average allowance for doubtful accounts for the same periods High or low - A high ratio is desirable, as it indicates that the company's collection of accounts receivable is frequent and efficient Average net accounts receivable $16,814 365 days 365 27 Average Total Assets : average amount of assets recorded on a company's balance sheet at the end of the current year and preceding year Accounts receivable turnover 13.6 days High or low - a higher ratio is favored because it implies that the company is efficient in generating sales or revenues from its asset base Net Income : an entity's income minus cost of goods sold, expenses, depreciation and amortization, interest, and taxes for an accounting period Net sales $229,234 0.66 High or low - if your net income is significantly lower than your total revenue, you may want to start cutting back on some operating costs Average total assets $348,503 Total Liabilities : the combined debts that an individual or company owes High or low - if a company has relatively low total liabilities, it may gain favorable interest rates on any new debt it undertakes from lenders, as lower total liabilities lessen the chance of default risk $48,351 $348,503 Net income 13.9% Average total assets Intrest Expense : the cost of borrowing money, the price that a lender charges a borrower for the use of the lender's money High or low - a higher interest expense means that the company is paying more to its debtors. In general, a company's capital structure with a heavier debt focus will have higher interest expenses Total Liabilities $241,272 64.3% Div. Per share of commons stock : the sum of declared dividends issued by a company for every ordinary share outstanding Total Assets $375,319 High or low - Dividends are usually issued by mature companies that have achieved steady growth. Smaller companies that are still growing will usually reinvest profits back into their operations, which can result in higher earnings for corporations and higher share prices for the investor. Net income + interest expense + income tax expense Market Price per share of common stock : the most recent price that a stock has traded for $61,765 $2,323 26.6 interest expense High or low - this should be high to make sd much money as possible off each stock Net income - preffered dividends : the cash dividends that a company pays out to its preferred shareholders High or low - One benefit of preferred stock is that it typically pays higher dividend rates than common stock of the same company Dividend per share of common stock $2.40 $8.34 28.8% Market price per share of common stock Average common stock holders equity : calculated by adding common shareholders' equity at the beginning of the year to common shareholders' equity at year's end and dividing that sum by two Hiah or low - a higher return on common stockholders'eauity ratio indicates hiah profitability and strona financial
11/30/17
As given in the income statement
$
927.00 Current Assets : cash and other assets that are expected to be converted to cash within a year
High or low - a higher current ratio is better for the business. A good current ratio is between 1.2 to 2, which
means that the business has 2 times more current assets than liabilities to covers its debts.
Current Liabilities : amounts due to be paid to creditors within twelve months
High or low - A high current ratio can be a sign of problems in managing working capital. When a current ratio is
low and current liabilities exceed current assets, then the company may have problems meeting its short-term
obligations
Current assets
$128,645
1.28
Current liabilities
$100,814
Gross Profit : sum of all wages, salaries, profits, interest payments, rents, and other forms of earnings, before
any deductions or taxes
High or low - a lower margin could indicate a company is under-pricing. A higher gross profit margin indicates
that a company can make a reasonable profit on sales, as long as it keeps overhead costs in control
Gross profit
$88,186
$229,234
38.5%
Net sales
Net Sales : operating revenues earned by a company for selling its products or rendering its services
High or low - If the difference between a company's gross and net sales is higher than an industry average, the
company may be offering higher discounts or realizing an excessive amount of returns compared to industry
competitors
Net income
$48,351
$229,234
21.1%
COSG : carrying value of goods sold during a particular period
High or low - As a general rule, your combined COGS and labor costs should not exceed 65% of your gross
revenue but if your business is in an expensive market, you should aim for a lower percentage
Net sales
Average Inventory : value or number of a particular good or set of goods during two or more specified time
periods
High or low - the higher inventory the better if your inventory turn over is also high since high inventory turnover
typically means a company is selling goods quickly, and there is considerable demand for their products
Cost of goods sold
$141,048
40.4
Average inventory
$3,494
Inventory Turnover : a measure of the number of times inventory is sold or used in a time period such as a
year
High or low - the inventory turnover, the better, since high inventory turnover typically means a company is
selling goods quickly, and there is considerable demand for their products
365 days
Inventory turnover
365
9
40.4
days
Net Credit Sales : purchases made by are sales where the cash is collected at a later date
High or low - Low so you avoid things like bankrupcy
Net credit sales
$229.234
13.6
II
Transcribed Image Text:11/30/17 As given in the income statement $ 927.00 Current Assets : cash and other assets that are expected to be converted to cash within a year High or low - a higher current ratio is better for the business. A good current ratio is between 1.2 to 2, which means that the business has 2 times more current assets than liabilities to covers its debts. Current Liabilities : amounts due to be paid to creditors within twelve months High or low - A high current ratio can be a sign of problems in managing working capital. When a current ratio is low and current liabilities exceed current assets, then the company may have problems meeting its short-term obligations Current assets $128,645 1.28 Current liabilities $100,814 Gross Profit : sum of all wages, salaries, profits, interest payments, rents, and other forms of earnings, before any deductions or taxes High or low - a lower margin could indicate a company is under-pricing. A higher gross profit margin indicates that a company can make a reasonable profit on sales, as long as it keeps overhead costs in control Gross profit $88,186 $229,234 38.5% Net sales Net Sales : operating revenues earned by a company for selling its products or rendering its services High or low - If the difference between a company's gross and net sales is higher than an industry average, the company may be offering higher discounts or realizing an excessive amount of returns compared to industry competitors Net income $48,351 $229,234 21.1% COSG : carrying value of goods sold during a particular period High or low - As a general rule, your combined COGS and labor costs should not exceed 65% of your gross revenue but if your business is in an expensive market, you should aim for a lower percentage Net sales Average Inventory : value or number of a particular good or set of goods during two or more specified time periods High or low - the higher inventory the better if your inventory turn over is also high since high inventory turnover typically means a company is selling goods quickly, and there is considerable demand for their products Cost of goods sold $141,048 40.4 Average inventory $3,494 Inventory Turnover : a measure of the number of times inventory is sold or used in a time period such as a year High or low - the inventory turnover, the better, since high inventory turnover typically means a company is selling goods quickly, and there is considerable demand for their products 365 days Inventory turnover 365 9 40.4 days Net Credit Sales : purchases made by are sales where the cash is collected at a later date High or low - Low so you avoid things like bankrupcy Net credit sales $229.234 13.6 II
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Ratio Analysis
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education