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RATIO ANALYSIS OF COMPARATIVE FINANCIAL STATEMENTS Refer to the financial statements in Problem 24-8B.
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 $111,325.)
- (b) Return on common stockholders’ equity (Total common stockholders’ equity on January 1,20-1, was $82,008.)
- (c) Earnings per share of common stock (The average numbers of shares outstanding were 6,300 shares in 20-1 and 6,900 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 $28,995.)
- (i) Merchandise inventory turnover (Merchandise inventory on January 1, 20-1, was $32,425.)
- (j) Debt-to-equity ratio
- (k) Asset turnover (Assets on January 1,20-1, were $111,325.)
- (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 $120.00 and $110.00 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 (New in Accounting from Heintz and Parry)
- RATIO 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_forwardRATIO 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) Current ratio (g) Working capital (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.)arrow_forwardRatio 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_forward
- Compute the following ratios for the most recent two years, show all values in the computations: 1.Current ratio 2.Accounts receivable turnover 3.Debt ratio(TotalLiabilities/Total Assets, as a percentage) 4.Debt-to-equity ratio Based on the results above, what conclusions can you make about the liquidity and solvency of the company?arrow_forwardPrepare a comparative balance sheet for both years, stating each asset as a percent total assets and each liability and stockholders' equity item as a percent of the total liabilities and stockholders' equity. If required, round percentages to one decimal plaarrow_forwardVertical Analysis of Balance Sheet Balance sheet data for a company for the years ended December 31, 20Y2 and 20Y1, are shown below. 20Y2 20Υ1 Current assets $ 752,000 $ 602,000 Property, plant, and equipment 6,248,000 5,397,000 Intangible assets 1,000,000 1,001,000 Current liabilities 504,000 427,000 Long-term liabilities 1,504,000 1,197,000 Common stock 1,248,000 1,253,000 Retained earnings 4,744,000 4,123,000 | Prepare a comparative balance sheet for 20Y2 and 20Y1, stating each asset as a percent of total assets and each liability and stockholders' equity item as a percent of the total liabilities and stockholders' equity. Round your answers to one decimal place. Comparative Balance Sheet December 31, 20Y2 and 20Y1 20Y2 Amount 20Y2 Percent 20Y1 Amount 20Y1 Percent Assets Current assets $752,000 % $602,000 % Property, plant, and equipment 6,248,000 5,397,000 Intangible assets 1,000,000 1,001,000arrow_forward
- Common-size financial statements recast each statement item as: Multiple Choice a percentage using industry averages for the "base number." a percentage using a base year number for each line item. a percentage of some "base number" on the financial statement in question. a percentage of the "bottom line."arrow_forwardConsider this simplified balance sheet for Geomorph Trading: Current assets Long-term assets $ 110 510 Net working capital $ 620 a. Debt-equity ratio b Long-term debt-to-capital ratio C. d. Current ratio a. What is the company's debt-equity ratio? (Round your answer to 2 decimal places.) b. What is the ratio of total long-term debt to total long-term capital? (Round your answer to 2 decimal places.) c. What is its net working capital? d. What is its current ratio? (Round your answer to 2 decimal places.) Current liabilities Long-term debt Other liabilities Equity $ 65 275 80 200 $ 620arrow_forwardDefinitional problems: Listed are 11 terms that relate to ratio analysis:1. Book value per share2.Inventoryturnover3. Debt-to-equity ratio4. Average collection period5. Average sales period6. Return on common equity7. Earnings per share8. Price/earnings ratio9. Return on total assets10. Current ratio11. Accounts-receivable turnoverChoose the financial ratio or term from the list that most appropriately completes each of the following statements:1. The__________ tends to have an effect on the market price per share asreflected in the price/earnings ratio.2. The__________ indicates whether a stock is relatively cheap or relativelyexpensive in relation to current earnings. 3. The________ measures the amount that would be distributed to holders of common stock if all assets were sold at their balance-sheet carrying amount and if all creditors were paid off.4. The_____________ is a rough measure of how many times a company'saccounts…arrow_forward
- Required: Compute the following: (For Requirements 1 to 4, enter your percentage answers rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) 1. Gross margin percentage. 2. Net profit margin percentage. 3. Return on total assets. 4. Return on equity. 5. Was financial leverage positive or negative for the year? 1. Gross margin percentage % 2. Net profit margin percentage % 3. Return on total assets % 4. Return on equity % 5. Financial Leveragearrow_forward2) Ratios Based on the information given in picture #1, complete the following ratios for the last TWO years and indicate whether the trend is favorable or unfavorable. Note percentages and times should be to one decimal place (e.g. 14.8%; 5.8x) Liq./Solv. Ratios Current Yr. Prior Yr. Fav/Unfav. Current Ratio (X) {Total. Current Assets/ Total Current Liabilities} Quick Ratio (X) {Cash + Short term Investments + Current Receivables/ Current Liabilities} Day's Sales Uncollected (days) {Total Accounts Receivables / Sales x 365}arrow_forward2) Ratios Based on the information given in picture #1, complete the following ratios for the last TWO years and indicate whether the trend is favorable or unfavorable. Note percentages and times should be to one decimal place (e.g. 14.8%; 5.8x) Liq./Solv. Ratios Current Yr. Prior Yr. Fav/Unfav. Current Ratio (X) {Total. Current Assets/ Total Current Liabilities} Quick Ratio (X) {Cash + Short term Investments + Current Receivables/ Current Liabilities} Day's Sales Uncollected (days) {Total Accounts Receivables / Sales x 365}arrow_forward
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