Intermediate Accounting (2nd Edition)
2nd Edition
ISBN: 9780134730370
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Textbook Question
Chapter 13, Problem 1FSC
Financial Statement Analysis Case
You are interested in further analyzing and comparing the liquidity of Pfizer Inc., and Johnson & Johnson Company. In an earlier analysis in Appendix B of Chapter 6, you found the current ratios of both companies at the end of fiscal year 2016 were above the threshold of 1 at 1.25 for Pfizer and 2 47 for Johnson & Johnson. In the Chapter 13 Financial Statement Analysis case, you assessed additional measures of Johnson 4 Johnson’s liquidity, which follow. Using information from the 2015 and 2016 financial statements for Pfizer, answer the following questions about the company’s liquidity and then compare the two companies.
- a. Compute Pfizer’s quick ratio for each year.
- b. Compute Pfizer’s cash ratio for each year.
- c. Compute Pfizer’s defensive interval ratio for each year.
- d. Comment on changes in Pfizer’s liquidity from 2015 to 2016 based on the ratios computed.
- e. Compare the changes in Pfizer’s liquidity from 2015 to 2016 to those computed in Example 13.19 in the text for Johnson & Johnson. The following tables are included for the comparison.
Pfizer Inc. *
Fiscal Year (in millions) | 2015 | 2016 | Percentage Change |
Total assets | $167,381 | $171,615 | 2.5% |
Cash and cash equivalents | 3,641 | 2,595 | (28 7) |
Short term marketable securities | 19,649 | 15,255 | (22.4) |
8,176 | 8,225 | 0.6 | |
Current assets | 43,804 | 38,949 | (11.1) |
Current liabilities | 29,399 | 31,115 | 5.8 |
Fiscal Year (in millions) | 2015 | 2016 | Percent Change |
Cost of goods sold | 9,648 | 12,329 | 27.8 |
Sales, marketing and administrative expenses | 14,809 | 14,837 | 0.2 |
Research and development expense | 7,690 | 7,872 | 2.4 |
5,157 | 5,757 | 11.6 | |
14,405 | 7,834 | (45.6) | |
1,49 | 1,25 | (16.1) |
2015 | 2016 | Percent Change | |
Working capital | $32,463 | $38,745 | 19.4% |
Current ratio | 2.17 | 2.47 | 13.8 |
Quick or acid test ratio | 1.77 | 204 | 15.3 |
Cash ratio | 1.38 | 1.59 | 15.2 |
Defensive interval ratio | 373.1 | 416.6 | 11.6 |
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You are provided with the Income Statement and the Balance Sheet of HTS software, Inc. for 2011.
Required:
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HTS Software , Inc.
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Balance SheetHTS Software, Inc.December 31,…
You are provided with the Income Statement and the Balance Sheet of HTS software, Inc. for 2011.
Required:
(b) Analyze the current financial position for the company from a time series and cross section viewpoint.
(c) Break your analysis into an evaluation of the firm’s liquidity, activity, debt, profitability and market ratios.
Historical and Industry Average Ratios
HTS Software , Inc.
Ratio
2010
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Industry2011
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2.6
2.08
2.7
Quick Ratio
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Inventory Turnover
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6
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9.125
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Chapter 13 Solutions
Intermediate Accounting (2nd Edition)
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