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Business Accounting Connect Access Card for Financial Accounting: Information and Decisions

Ratio analysis is one of the tools of the financial statement analysis. Ratio analysis compares two variables and calculates the relation between the variables. Some major ratio analysis are profitability ratios, liquidity ratios etc. To indicate: if the change in the ratio is favorable or unfavorable. The change in each ratio is analyzed as under: Ratio 2016 2015 Change Nature Explanation 1. Profit margin 9% 8% 1% Favorable Increase in profit margin ratio indicates increase in profits. 2. Debt ratio 47% 42% 5% Unfavorable Increase in debt ratio indicates increase in liabilities. 3. Gross margin 34% 46% -12% Unfavorable Decrease in gross margin indicates decrease in gross profits. 4. Acid test ratio 1 1.15 -0.15 Unfavorable Decrease in acid test ratio indicates decrease in liquid assets. 5. Accounts receivable turnover ratio 5.5 6.7 -1.2 Unfavorable Decrease in accounts receivable turnover indicates decrease in collection from receivables. 6. Basic earnings per share $ 1.25 $ 1.10 $ 0.15 Favorable Increase in basis earnings per share indicates increase in earnings. 7. Inventory turnover 3.6 3.4 0.2 Favorable Increase in inventory turnover indicates increase in sale of inventory. 8. Dividend yield 2% 1.20% 0.80% Favorable Increase in dividend yield indicates increase in dividend earnings.

Ratio analysis is one of the tools of the financial statement analysis. Ratio analysis compares two variables and calculates the relation between the variables. Some major ratio analysis are profitability ratios, liquidity ratios etc. To indicate: if the change in the ratio is favorable or unfavorable. The change in each ratio is analyzed as under: Ratio 2016 2015 Change Nature Explanation 1. Profit margin 9% 8% 1% Favorable Increase in profit margin ratio indicates increase in profits. 2. Debt ratio 47% 42% 5% Unfavorable Increase in debt ratio indicates increase in liabilities. 3. Gross margin 34% 46% -12% Unfavorable Decrease in gross margin indicates decrease in gross profits. 4. Acid test ratio 1 1.15 -0.15 Unfavorable Decrease in acid test ratio indicates decrease in liquid assets. 5. Accounts receivable turnover ratio 5.5 6.7 -1.2 Unfavorable Decrease in accounts receivable turnover indicates decrease in collection from receivables. 6. Basic earnings per share $ 1.25 $ 1.10 $ 0.15 Favorable Increase in basis earnings per share indicates increase in earnings. 7. Inventory turnover 3.6 3.4 0.2 Favorable Increase in inventory turnover indicates increase in sale of inventory. 8. Dividend yield 2% 1.20% 0.80% Favorable Increase in dividend yield indicates increase in dividend earnings.

Solution Summary: The author explains that Ratio analysis compares two variables and calculates the relation between the variables.

Connect Access Card for Financial Accounting: Information and Decisions

Connect Access Card for Financial Accounting: Information and Decisions

8th Edition

ISBN: 9781259662966

Author: John J Wild

Publisher: McGraw-Hill Education

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Connect Access Card for Financial Accounting: Information and Decisions

Ch. 13 - Explain the difference between financial reporting...Ch. 13 - Prob. 2DQ Ch. 13 - Prob. 3DQ Ch. 13 - Prob. 4DQ Ch. 13 - Prob. 5DQ Ch. 13 - Prob. 6DQ Ch. 13 - Prob. 7DQ Ch. 13 - Prob. 8DQ Ch. 13 - Prob. 9DQ Ch. 13 - Prob. 10DQ

Ch. 13 - Prob. 11DQ Ch. 13 - Prob. 12DQ Ch. 13 - Prob. 13DQ Ch. 13 - Prob. 14DQ Ch. 13 - Prob. 15DQ Ch. 13 - Prob. 16DQ Ch. 13 - Prob. 17DQ Ch. 13 - Financial reporting Cl. Which of the following...Ch. 13 - Prob. 2QS Ch. 13 - Prob. 3QS Ch. 13 - Prob. 4QS Ch. 13 - Prob. 5QS Ch. 13 - Prob. 6QS Ch. 13 - Prob. 7QS Ch. 13 - Prob. 8QS Ch. 13 - Prob. 9QS Ch. 13 - Prob. 1E Ch. 13 - Prob. 2E Ch. 13 - Prob. 3E Ch. 13 - Prob. 4E Ch. 13 - Prob. 5E Ch. 13 - Prob. 6E Ch. 13 - Prob. 7E Ch. 13 - Prob. 8E Ch. 13 - Risk and capital structure analysis P3 Refer to...Ch. 13 - Prob. 10E Ch. 13 - Prob. 11E Ch. 13 - Prob. 12E Ch. 13 - Prob. 14E Ch. 13 - Prob. 15E Ch. 13 - Prob. 1PSA Ch. 13 - Prob. 2PSA Ch. 13 - Prob. 3PSA Ch. 13 - Prob. 4PSA Ch. 13 - Prob. 5PSA Ch. 13 - Prob. 6PSA Ch. 13 - Prob. 1PSB Ch. 13 - Prob. 2PSB Ch. 13 - Prob. 3PSB Ch. 13 - Prob. 4PSB Ch. 13 - Prob. 5PSB Ch. 13 - Prob. 6PSB Ch. 13 - Prob. 13SP Ch. 13 - Prob. 1BTN Ch. 13 - Prob. 2BTN Ch. 13 - Prob. 3BTN Ch. 13 - Prob. 7BTN Ch. 13 - Prob. 9BTN

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