Problem 2 Selected balance sheet and income statement information for the jewelry retailer, Tiffany & Co. for 2011 through 2013 follows: ($millions) 2013 2012 2011 Net sales $3,794 $3,643 $3,085 Interest expense 59 49 54 Pretax income 644 665 547 Net income 416 439 368 Current assets 3,152 2,890 2,685 Total assets 4,631 4,159 3,736 Current liabilities 587 627 480 Required Compute the current ratio for each year and discuss any trends. Do you feel that the company is sufficiently liquid? What additional information might be helpful in analyzing the liquidity? Compute times interest earned for each year and discuss any trends. Do you have any concerns about its level of financial leverage and its ability to meet interest obligations?
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Problem 2
Selected
|
($millions) |
2013 |
2012 |
2011 |
|
Net sales |
$3,794 |
$3,643 |
$3,085 |
|
Interest expense |
59 |
49 |
54 |
|
Pretax income |
644 |
665 |
547 |
|
Net income |
416 |
439 |
368 |
|
Current assets |
3,152 |
2,890 |
2,685 |
|
Total assets |
4,631 |
4,159 |
3,736 |
|
Current liabilities |
587 |
627 |
480 |
Required
- Compute the
current ratio for each year and discuss any trends. Do you feel that the company is sufficiently liquid? What additional information might be helpful in analyzing the liquidity? - Compute times interest earned for each year and discuss any trends. Do you have any concerns about its level of financial leverage and its ability to meet interest obligations?
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