Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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Textbook Question
Chapter 5, Problem 13PC
Calculating and Interpreting Risk Ratios. Refer to the financial statement data for Hasbro in Problem 4.24 in Chapter 4. Exhibit 5.15 presents risk ratios for Hasbro for Year 2 and Year 3.
Exhibit 5.15
REQUIRED
- a. Calculate the amounts of these ratios for Year 4.
- b. Assess the changes in the short-term liquidity risk of Hasbro between Year 2 and Year 4 and the level of that risk at the end of Year 4.
- c. Assess the changes in the long-term solvency risk of Hasbro between Year 2 and Year 4 and the level of that risk at the end of Year 4.
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How is the short term debt repayment capacity of a company is assessed ? Choose the INCORRECT OPTIONa) Current Ratio is analyzedb) Liquidity Ratios and the Cashc) Quick Ratio is analyzedd) The statement of Cash Flows is analyzed
PLASMA SCREENS CORPORATION
Balance Sheets
December 31, 2021 and 2020
2021
2020
Assets
Current assets:
Cash
Accounts receivable
Inventory
Investments
$242,000
98,000
105,000
5,000
$ 130,000
102,000
90,000
3,000
Long-term assets:
Land
Equipment
Less: Accumulated depreciation
580,000
890,000
(528,000)
$1,392,000
580,000
770,000
(368,000)
$1,307,000
Total assets
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
Interest payab le
Income tax payable
Long-term liabilities:
Notes payable
Stockholders' equity:
Common stock
Retained earnings
$ 109,000
7,000
9,000
95,000
13,000
6,000
2$
110,000
220,000
800,000
357,000
$1,392,000 $1,307,000
800,000
173,000
Total liabilities and stockholders' equity
Additional information for 2021:
1. Net income is $184,000.
2. Sales on account are $1,890,000.
3. Cost of goods sold is $1,394,250.
Long-term solvency refers to a company’s ability to pay its long-term obligations. Financing ratios provideinvestors and creditors with an indication of this element of risk.Required:1. Calculate the debt to equity ratio for AGF for 2018. The average ratio for the stocks listed on the New YorkStock Exchange in a comparable time period was 1.0. What information does your calculation provide aninvestor?2. Is AGF experiencing favorable or unfavorable financial leverage?3. Calculate AGF’s times interest earned ratio for 2018. The coverage for the stocks listed on the New YorkStock Exchange in a comparable time period was 5.1. What does your calculation indicate about AGF’s risk?
Chapter 5 Solutions
Financial Reporting, Financial Statement Analysis and Valuation
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