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Concept Introduction:
Financial Statement analysis is done using the components of financial statement. These components are
Current Ratio is measure of the company's ability to pay off its current liabilities using its current assets. It is calculated by dividing the total current assets by total current liabilities. The formula of the current ratio is as follows:
Requirement-1:
To Calculate:
The Current ratio for each year
![Check Mark](/static/check-mark.png)
Answer to Problem 2BPSB
The Current ratios for each year are as follows:
2019 | 2018 | 2017 | |
Current Ratio | 2.5 | 1.7 | 2.2 |
Explanation of Solution
The Current ratios for each year are calculated as follows:
2019 | 2018 | 2017 | |
Current Assets (A) | 54860 | 32660 | 36300 |
Current Liabilities (B) | 22370 | 19180 | 16500 |
Current Ratio (A/B) | 2.5 | 1.7 | 2.2 |
Concept Introduction:
Financial Statement analysis is done using the components of financial statement. These components are Balance sheet, Income statement, Statement of Cash flows etc. Annual report of a company contains financial statement of that year and previous year for comparison. If the company has subsidiaries or segments, the financial statement shall be consolidated for whole business of the company.
Common Size Financial Statement:
Common Size Analysis is prepared as % format which shows readymade analysis for the financial statements. For the Income statement the common size format shows all the amounts as a % of sales revenue and for the Balance sheet the common size format shows the each items of the balance sheet as a % of the Total assets amount.
Requirement-2:
To Calculate:
The Common Size Income Statement
![Check Mark](/static/check-mark.png)
Answer to Problem 2BPSB
The Common Size Income Statement is as follows:
BLUEGRASS CORPORATION | |||
Common Size income Statement | |||
2019 | 2018 | 2017 | |
Sales | 100.00% | 100.00% | 100.00% |
Cost of Goods Sold | 54.77% | 51.91% | 46.04% |
Gross Profit | 45.23% | 48.09% | 53.96% |
Selling Expenses | 11.41% | 11.92% | 12.52% |
Administrative Expenses | 8.43% | 8.80% | 10.92% |
Total Expenses | 19.84% | 20.72% | 23.44% |
Income before Taxes | 25.39% | 27.36% | 30.53% |
Income Taxes | 3.04% | 3.56% | 3.69% |
Net Income | 22.34% | 23.80% | 26.84% |
Explanation of Solution
The Common Size Income Statement is calculated as follows:
BLUEGRASS CORPORATION | ||||||
Common Size income Statement | ||||||
2019 | 2018 | 2017 | ||||
Sales | 198800 | 100.00% | 166000 | 100.00% | 143800 | 100.00% |
Cost of Goods Sold | 108890 | 54.77% | 86175 | 51.91% | 66200 | 46.04% |
Gross Profit | 89910 | 45.23% | 79825 | 48.09% | 77600 | 53.96% |
Selling Expenses | 22680 | 11.41% | 19790 | 11.92% | 18000 | 12.52% |
Administrative Expenses | 16760 | 8.43% | 14610 | 8.80% | 15700 | 10.92% |
Total Expenses | 39440 | 19.84% | 34400 | 20.72% | 33700 | 23.44% |
Income before Taxes | 50470 | 25.39% | 45425 | 27.36% | 43900 | 30.53% |
Income Taxes | 6050 | 3.04% | 5910 | 3.56% | 5300 | 3.69% |
Net Income | 44420 | 22.34% | 39515 | 23.80% | 38600 | 26.84% |
Concept Introduction:
Financial Statement analysis is done using the components of financial statement. These components are Balance sheet, Income statement, Statement of Cash flows etc. Annual report of a company contains financial statement of that year and previous year for comparison. If the company has subsidiaries or segments, the financial statement shall be consolidated for whole business of the company.
Requirement-3:
To Calculate:
The Trend analysis for the balance sheet items
![Check Mark](/static/check-mark.png)
Answer to Problem 2BPSB
The Trend analysis for the balance sheet items is as follows:
BLUEGRASS CORPORATION | |||
Comparative Balance Sheets Trend analysis | |||
2019 | 2018 | 2017 | |
Assets: | |||
Current Assets (A) | 54860 | 32660 | 36300 |
Trend % = A / 36300 | 151.13% | 89.97% | 100.00% |
Long Term Investments (B) | 0 | 1700 | 10600 |
Trend % = B / 10600 | 0.00% | 16.04% | 100.00% |
Plant assets, net (C) | 112810 | 113660 | 79000 |
Trend % = C / 79000 | 142.80% | 143.87% | 100.00% |
Total Assets (D) | 167670 | 148020 | 125900 |
Trend % = D / 125900 | 133.18% | 117.57% | 100.00% |
Liabilities and Equity: | |||
Current Liabilities (E) | 22370 | 19180 | 16500 |
Trend % = E / 16500 | 135.58% | 116.24% | 100.00% |
Common Stock (F) | 46500 | 46500 | 37000 |
Trend % = F / 37000 | 125.68% | 125.68% | 100.00% |
Other paid in capital (G) | 13850 | 13850 | 11300 |
Trend % = G / 11300 | 122.57% | 122.57% | 100.00% |
84950 | 68490 | 61100 | |
Trend % = H / 61100 | 139.03% | 112.09% | 100.00% |
Total Liabilities and Equity (I) | 167670 | 148020 | 125900 |
Trend % = I / 125900 | 133.18% | 117.57% | 100.00% |
Explanation of Solution
The Trend analysis for the balance sheet items is calculated as follows:
BLUEGRASS CORPORATION | |||
Comparative Balance Sheets Trend analysis | |||
2019 | 2018 | 2017 | |
Assets: | |||
Current Assets (A) | 54860 | 32660 | 36300 |
Trend % = A / 36300 | 151.13% | 89.97% | 100.00% |
Long Term Investments (B) | 0 | 1700 | 10600 |
Trend % = B / 10600 | 0.00% | 16.04% | 100.00% |
Plant assets, net (C) | 112810 | 113660 | 79000 |
Trend % = C / 79000 | 142.80% | 143.87% | 100.00% |
Total Assets (D) | 167670 | 148020 | 125900 |
Trend % = D / 125900 | 133.18% | 117.57% | 100.00% |
Liabilities and Equity: | |||
Current Liabilities (E) | 22370 | 19180 | 16500 |
Trend % = E / 16500 | 135.58% | 116.24% | 100.00% |
Common Stock (F) | 46500 | 46500 | 37000 |
Trend % = F / 37000 | 125.68% | 125.68% | 100.00% |
Other paid in capital (G) | 13850 | 13850 | 11300 |
Trend % = G / 11300 | 122.57% | 122.57% | 100.00% |
Retained Earnings (H) | 84950 | 68490 | 61100 |
Trend % = H / 61100 | 139.03% | 112.09% | 100.00% |
Total Liabilities and Equity (I) | 167670 | 148020 | 125900 |
Trend % = I / 125900 | 133.18% | 117.57% | 100.00% |
Concept Introduction:
Financial Statement analysis is done using the components of financial statement. These components are Balance sheet, Income statement, Statement of Cash flows etc. Annual report of a company contains financial statement of that year and previous year for comparison. If the company has subsidiaries or segments, the financial statement shall be consolidated for whole business of the company.
Requirement-4:
To Indicate:
Major trends and ratio analysis
![Check Mark](/static/check-mark.png)
Answer to Problem 2BPSB
- The cost of goods sold made up greater portion (>50%) of the sales for most of the years
- The income as % of sales has worsen in the year 2019
- Plant assets grew in the last years over 143%
Explanation of Solution
The Common Size Income Statement is as follows:
BLUEGRASS CORPORATION | |||
Common Size income Statement | |||
2019 | 2018 | 2017 | |
Sales | 100.00% | 100.00% | 100.00% |
Cost of Goods Sold | 54.77% | 51.91% | 46.04% |
Gross Profit | 45.23% | 48.09% | 53.96% |
Selling Expenses | 11.41% | 11.92% | 12.52% |
Administrative Expenses | 8.43% | 8.80% | 10.92% |
Total Expenses | 19.84% | 20.72% | 23.44% |
Income before Taxes | 25.39% | 27.36% | 30.53% |
Income Taxes | 3.04% | 3.56% | 3.69% |
Net Income | 22.34% | 23.80% | 26.84% |
The Trend analysis for the balance sheet items is calculated as follows:
BLUEGRASS CORPORATION | |||
Comparative Balance Sheets Trend analysis | |||
2019 | 2018 | 2017 | |
Assets: | |||
Current Assets (A) | 54860 | 32660 | 36300 |
Trend % = A / 36300 | 151.13% | 89.97% | 100.00% |
Long Term Investments (B) | 0 | 1700 | 10600 |
Trend % = B / 10600 | 0.00% | 16.04% | 100.00% |
Plant assets, net (C) | 112810 | 113660 | 79000 |
Trend % = C / 79000 | 142.80% | 143.87% | 100.00% |
Total Assets (D) | 167670 | 148020 | 125900 |
Trend % = D / 125900 | 133.18% | 117.57% | 100.00% |
Liabilities and Equity: | |||
Current Liabilities (E) | 22370 | 19180 | 16500 |
Trend % = E / 16500 | 135.58% | 116.24% | 100.00% |
Common Stock (F) | 46500 | 46500 | 37000 |
Trend % = F / 37000 | 125.68% | 125.68% | 100.00% |
Other paid in capital (G) | 13850 | 13850 | 11300 |
Trend % = G / 11300 | 122.57% | 122.57% | 100.00% |
Retained Earnings (H) | 84950 | 68490 | 61100 |
Trend % = H / 61100 | 139.03% | 112.09% | 100.00% |
Total Liabilities and Equity (I) | 167670 | 148020 | 125900 |
Trend % = I / 125900 | 133.18% | 117.57% | 100.00% |
Hence,
- The cost of goods sold made up greater portion (>50%) of the sales for most of the years
- The income as % of sales has worsen in the year 2019
- Plant assets grew in the last years over 143%
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Chapter 17 Solutions
FUND.ACCT.PRIN.(LOOSELEAF)-W/ACCESS
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