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Concept explainers
RATIO ANALY SIS OF COMPARATI VE FIN ANCIAL STATE MENT S Refer to the financial statements in Problem 24-8A.
REQUIRED
Calculate the following ratios and amounts for 20-1 and 20-2 (round all calculations to two decimal places):
(a) Return on assets (Total assets on January 1, 20-1, were $175,750.)
(b) Return on common stockholders’ equity (Total common stockholders’ equity on January 1, 20-1, was $106,944.)
(c) Earnings per share of common stock (The average numbers of shares outstanding were 8,400 shares in 20-1 and 9,200 in 20-2.)
(d) Book value per share of common stock
(e) Quick ratio
(f)
(g)
(h) Receivables turnover and average collection period (Net receivables on January 1, 20-1, were $39,800.)
(i) Merchandise inventory turnover and average number of days to sell inventory (Merchandise inventory on January 1, 20-1, was $48,970.)
(j) Debt-to-equity ratio
(k) Asset turnover (Assets on January 1, 20-1, were $175,750.)
(l) Times interest earned ratio
(m) Profit margin ratio
(n) Assets-to-equity ratio
(o) Price-earnings ratio (The market price of the common stock was $100.00 and $85.00 on December 31, 20-2 and 20-1, respectively.)
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Calculate the following ratios and amounts for 20-1 and 20-2.
- (a) Return on assets
- (b) Return on common stockholders’ equity
- (c) Earnings per share
- (d) Book value per share
- (e) Quick ratio
- (f) Current ratio
- (g) Working capital
- (h) Receivables turnover and average collection period
- (i) Merchandise inventory and average number of days to sell inventory
- (j) Debt-equity ratio
- (k) Assets turnover
- (l) Times interest earned ratio
- (m) Profit margin ratio
- (n) Assets to equity ratio
- (o) Price-earnings ratio
Explanation of Solution
Financial statement analysis:
Financial statement analysis is a valuable measure for evaluating management performance.
The methods of analysis must be used carefully with in their limitations.
(a)
Calculate return on assets during the period of 20-2.
Calculate return on assets during the period of 20-1.
(b)
Calculate return on common stockholders’ equity during the period of 20-2.
Calculate return on common stockholders’ equity during the period of 20-1.
(c)
Calculate earnings per share of common stock during the period of 20-2.
Calculate earnings per share of common stock during the period of 20-1.
(d)
Calculate book value per share of common stock during the period of 20-2.
Calculate book value per share of common stock during the period of 20-1.
(e)
Calculate quick ratio during the period of 20-2.
Calculate quick ratio during the period of 20-1.
(f)
Calculate current ratio during the period of 20-2.
Calculate current ratio during the period of 20-1.
(g)
Calculate working capital during the period of 20-2.
Calculate working capital during the period of 20-1.
(h)
Calculate receivables turnover during the period of 20-2.
Calculate receivables turnover during the period of 20-1.
Calculate average collection period during the period 20-2.
Calculate average collection period during the period 20-1.
(i)
Calculate merchandise inventory turnover during the period 20-2.
Calculate merchandise inventory turnover during the period 20-1.
Calculate average number of days to sell inventory during the period of 20-2.
Calculate average number of days to sell inventory during the period of 20-1.
(j)
Calculate debt-equity ratio during the period of 20-2.
Calculate debt-equity ratio during the period of 20-1.
Calculate asset turnover ratio during the period of 20-2.
Calculate asset turnover ratio during the period of 20-1.
(l)
Calculate time interest earned ratio during the period of 20-2.
Calculate time interest earned ratio during the period of 20-1.
(m)
Calculate profit margin ratio during the period of 20-2.
Calculate profit margin ratio during the period of 20-1.
(n)
Calculate assets to equity ratio during the period of 20-2.
Calculate assets to equity ratio during the period of 20-1.
(o)
Calculate price earnings ratio during the period of 20-2.
Calculate price earnings ratio during the period of 20-2.
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Chapter 24 Solutions
College Accounting, Chapters 1-27
- Ratio of liabilities to stockholders equity and times interest earned The following data were taken from the financial statements of Hunter Inc. for December 31 of two recent years: The income before income tax expense was 480,000 and 420,000 for the current and previous years, respectively. A. Determine the ratio of liabilities to stockholders equity at the end of each year. Round to one decimal place. B. Determine the times interest earned ratio for both years. Round to one decimal place. C. What conclusions can be drawn from these data as to the companys ability to meet its currently maturing debts?arrow_forwardRATIO ANALYSIS OF COMPARATIVE FINANCIAL STATEMENTS Refer to the financial statements in Problem 24-8A. REQUIRED Calculate the following ratios and amounts for 20-1 and 20-2 (round all calculations to two decimal places): (a) Return on assets (Total assets on January 1, 20-1, were 175,750.) (b) Return on common stockholders equity (Total common stockholders equity on January 1, 20-1, was 106,944.) (c) Earnings per share of common stock (The average numbers of shares outstanding were 8,400 shares in 20-1 and 9,200 in 20-2.) (d) Book value per share of common stock (e) Quick ratio (f) Current ratio (g) Working capital (h) Receivables turnover (Net receivables on January 1, 20-1, were 39,800.) (i) Merchandise inventory turnover (Merchandise inventory on January 1,20-1, was 48,970.) (j) Debt-to-equity ratio (k) Asset turnover (Assets on January 1, 20-1, were 175,750.) (l) Times interest earned ratio (m) Profit margin ratio (n) Assets-to-equity ratio (o) Price-earnings ratio (The market price of the common stock was 100.00 and 85.00 on December 31, 20-2 and 20-1, respectively.)arrow_forwardJuroe Company provided the following income statement for last year: Juroes balance sheet as of December 31 last year showed total liabilities of 10,250,000, total equity of 6,150,000, and total assets of 16,400,000. Required: Note: Round answers to two decimal places. 1. Calculate the times-interest-earned ratio. 2. Calculate the debt ratio. 3. Calculate the debt-to-equity ratio.arrow_forward
- Klynveld Companys balance sheet shows total liabilities of 94,000,000, total stockholders equity of 75,000,000, and total assets of 169,000,000. Required: Note: Round answers to two decimal places. 1. Calculate the debt ratio. 2. Calculate the debt-to-equity ratio.arrow_forwardThe following items are reported on a companys balance sheet: Determine (a) the current ratio and (b) the quick ratio. Round to one decimal place.arrow_forwardEffect of transactions on current position analysis Data pertaining to the current position of Forte Company follow: Instructions 1. Compute (a) the working capital, (b) the current ratio, and (c) the quick ratio. Round ratios in parts b through j to one decimal place. 2. List the following captions on a sheet of paper: Compute the working capital, the current ratio, and the quick ratio after each of the following transactions and record the results in the appropriate columns. Consider each transaction separately and assume that only that transaction affects the data given. Round to one decimal place. a. Sold marketable securities at no gain or loss, 70,000. b. Paid accounts payable, 125,000. c. Purchased goods on account, 110,000. d. Paid notes payable, 100,000. e. Declared a cash dividend, 150,000. f. Declared a common stock dividend on common stock, 50,000. g. Borrowed cash from bank on a long-term note, 225,000. h. Received cash on account, 125,000. i. Issued additional shares of stock for cash, 600,000. j. Paid cash for prepaid expenses, 10,000.arrow_forward
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