Ratio Analysis • Ratio analysis is a study of several key metrics of a company based on the data presented in its’ financial statements with an objective to evaluate the financial health of a company. • It is essential for investors, stakeholders, government bodies etc. to evaluate the key metrics of an entity in order to ensure that the company fulfills the going concern principle and displays financial stability. The key metrics mentioned above include the following: • Days’ sales uncollected – A measure of the total outstanding collections for credit sales in number of days. • It is a measure used by companies to calculate their average collection period and understand how well accounts receivables are being managed. Days sale uncollected = Accounts Receivable / Average Sales per Day • Accounts receivable turnover – A measure of the relation between the turnover and accounts receivable measured in number of times. • It seeks to measure the relation of the credit sales in proportion to the total turnover and is an indicator of how much of the receivables are blocked due to credit sales. Accounts Receivable Turnover Ratio = Turnover / Accounts Receivable • Inventory turnover – A measure of the relation between the turnover and inventory measured in number of times. • It seeks to measure the relation of the inventory rolled over in proportion to the total turnover and is an indicator of how much of the inventory is fast moving in relation to the total turnover. Inventory Turnover Ratio = Turnover / Inventory • Days’ sales in inventory – A measure of the total outstanding collections for credit sales in terms of inventory. • It is calculated to understand how many days the company holds inventory before selling it. Days sale in Inventory = 365 / Inventory Turnover Ratio To Compute: a) Days’ Sales Uncollected b) Accounts Receivable turnover Ratio c) Inventory Turnover Ratio d) Days’ Sales in Inventory for the years 2016 and 2017 and comment on change in Ratios

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Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 17, Problem 8E

To determine

Introduction:

Ratio Analysis

• Ratio analysis is a study of several key metrics of a company based on the data presented in its’ financial statements with an objective to evaluate the financial health of a company.

• It is essential for investors, stakeholders, government bodies etc. to evaluate the key metrics of an entity in order to ensure that the company fulfills the going concern principle and displays financial stability.

The key metrics mentioned above include the following:

• Days’ sales uncollected – A measure of the total outstanding collections for credit sales in number of days.

• It is a measure used by companies to calculate their average collection period and understand how well accounts receivables are being managed.

$Days sale uncollected = Accounts Receivable / Average Sales per Day$

• Accounts receivable turnover – A measure of the relation between the turnover and accounts receivable measured in number of times.

• It seeks to measure the relation of the credit sales in proportion to the total turnover and is an indicator of how much of the receivables are blocked due to credit sales.

$Accounts Receivable Turnover Ratio = Turnover / Accounts Receivable$

• Inventory turnover – A measure of the relation between the turnover and inventory measured in number of times.

• It seeks to measure the relation of the inventory rolled over in proportion to the total turnover and is an indicator of how much of the inventory is fast moving in relation to the total turnover.

$Inventory Turnover Ratio = Turnover / Inventory$

• Days’ sales in inventory – A measure of the total outstanding collections for credit sales in terms of inventory.

• It is calculated to understand how many days the company holds inventory before selling it.

$Days sale in Inventory = 365 / Inventory Turnover Ratio$

To Compute:

a) Days’ Sales Uncollected

b) Accounts Receivable turnover Ratio

c) Inventory Turnover Ratio

d) Days’ Sales in Inventory for the years 2016 and 2017 and comment on change in Ratios

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Hanks Company estimates its manufacturing overhead to be $450,000 and its direct labor costs to be $300,000 for year 5. Hanks worked three jobs for the year. Job 5-1, which was sold during year 5, had actual direct labor costs of $90,000. Job 5-2, which was completed but not sold at the end of the year, had actual direct labor costs of $140,000. Job 5-3, which is still in work-in-process inventory, had actual direct labor costs of $80,000. The actual manufacturing overhead for year 5 was $470,000. Manufacturing overhead is applied on the basis of direct labor costs. a) How much overhead was applied to each job in year 5? b) What was the over-or underapplied manufacturing overhead for year 5?

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Answer 2

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Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 17, Problem 8E

To determine

Introduction:

Ratio Analysis

• Ratio analysis is a study of several key metrics of a company based on the data presented in its’ financial statements with an objective to evaluate the financial health of a company.

• It is essential for investors, stakeholders, government bodies etc. to evaluate the key metrics of an entity in order to ensure that the company fulfills the going concern principle and displays financial stability.

The key metrics mentioned above include the following:

• Days’ sales uncollected – A measure of the total outstanding collections for credit sales in number of days.

• It is a measure used by companies to calculate their average collection period and understand how well accounts receivables are being managed.

$Days sale uncollected = Accounts Receivable / Average Sales per Day$

• Accounts receivable turnover – A measure of the relation between the turnover and accounts receivable measured in number of times.

• It seeks to measure the relation of the credit sales in proportion to the total turnover and is an indicator of how much of the receivables are blocked due to credit sales.

$Accounts Receivable Turnover Ratio = Turnover / Accounts Receivable$

• Inventory turnover – A measure of the relation between the turnover and inventory measured in number of times.

• It seeks to measure the relation of the inventory rolled over in proportion to the total turnover and is an indicator of how much of the inventory is fast moving in relation to the total turnover.

$Inventory Turnover Ratio = Turnover / Inventory$

• Days’ sales in inventory – A measure of the total outstanding collections for credit sales in terms of inventory.

• It is calculated to understand how many days the company holds inventory before selling it.

$Days sale in Inventory = 365 / Inventory Turnover Ratio$

To Compute:

a) Days’ Sales Uncollected

b) Accounts Receivable turnover Ratio

c) Inventory Turnover Ratio

d) Days’ Sales in Inventory for the years 2016 and 2017 and comment on change in Ratios

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 3

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 17, Problem 8E

To determine

Introduction:

Ratio Analysis

• Ratio analysis is a study of several key metrics of a company based on the data presented in its’ financial statements with an objective to evaluate the financial health of a company.

• It is essential for investors, stakeholders, government bodies etc. to evaluate the key metrics of an entity in order to ensure that the company fulfills the going concern principle and displays financial stability.

The key metrics mentioned above include the following:

• Days’ sales uncollected – A measure of the total outstanding collections for credit sales in number of days.

• It is a measure used by companies to calculate their average collection period and understand how well accounts receivables are being managed.

$Days sale uncollected = Accounts Receivable / Average Sales per Day$

• Accounts receivable turnover – A measure of the relation between the turnover and accounts receivable measured in number of times.

• It seeks to measure the relation of the credit sales in proportion to the total turnover and is an indicator of how much of the receivables are blocked due to credit sales.

$Accounts Receivable Turnover Ratio = Turnover / Accounts Receivable$

• Inventory turnover – A measure of the relation between the turnover and inventory measured in number of times.

• It seeks to measure the relation of the inventory rolled over in proportion to the total turnover and is an indicator of how much of the inventory is fast moving in relation to the total turnover.

$Inventory Turnover Ratio = Turnover / Inventory$

• Days’ sales in inventory – A measure of the total outstanding collections for credit sales in terms of inventory.

• It is calculated to understand how many days the company holds inventory before selling it.

$Days sale in Inventory = 365 / Inventory Turnover Ratio$

To Compute:

a) Days’ Sales Uncollected

b) Accounts Receivable turnover Ratio

c) Inventory Turnover Ratio

d) Days’ Sales in Inventory for the years 2016 and 2017 and comment on change in Ratios

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 4

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 17, Problem 8E

To determine