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Working With Financial Statement Quetion

Working with financial statement In this chapter you will solve and learn how to work in financial statement

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24 views23 pages

Working With Financial Statement Quetion

Working with financial statement In this chapter you will solve and learn how to work in financial statement

Uploaded by

williamshallworth990
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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You are on page 1/ 23

3-1

McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights


Chapter 3 Review

2-2
Chapter 3 Review

2-3
Answer to Chapter 3 Review

To calculate the common-size balance sheet, we divide each asset account by total
assets, and each liability and equity account by total liabilities and equity. For example,
the common-size cash percentage for 2009 is:

Cash percentage = Cash / Total assets


Cash percentage = $23,774 / $873,543
Cash percentage = 0.0272 or 2.72%
Answer to Chapter 3 Review
2009 2010
Assets
Current assets
Cash $23,774 2.72% $31,437 3.49%
Accounts receivable 57,281 6.56% 77,639 8.62%
Inventory 135,341 15.49% 202,574 22.49%
Total $216,396 24.77% $311,650 34.60%
Fixed assets
Net plant and equipment $657,147 75.23% $589,178 65.40%
Total assets $873,543 100% $900,828 100%

Liabilities and owners' equity


Current liabilities
Accounts payable $194,922 22.31% $202,611 22.49%
Notes payable 90,020 10.31% 141,588 15.72%
Total $284,942 32.62% $344,199 38.21%
Long-term debt $247,000 28.28% $183,750 20.40%
Owners' equity

Common stock and paid-in surplus $208,000 23.81% $208,000 23.09%


Accumulated retained earnings 133,601 15.29% 164,879 18.30%
Total $341,601 39.11% $372,879 41.39%
Total liabilities and owners' equity $873,543 100% $900,828 100%
Answer to Chapter 3 Review
a. The current ratio is calculated as:

Curent ratio = Current assets / Current liabilities

Current ratio2009 = $216,396 / $284,942


Current ratio2009 = 0.76 times

Current ratio2010 = $311,650 / $344,199


Current ratio2010 = 0.91 times

b. The quick ratio is calculated as:

Quick ratio = (Current assets – Inventory) / Current liabilities

Quick ratio2009 = ($216,396 – 135,341) / $284,942


Quick ratio2009 = 0.28 times

Quick ratio2010 = ($311,650 – 202,574) / $344,199


Quick ratio2010 = 0.32 times
Answer to Chapter 3 Review
c. The cash ratio is calculated as:

Cash ratio = Cash / Current liabilities

Cash ratio2009 = $23,744 / $284,942


Cash ratio2009 = 0.08 times

Cash ratio2010 = $31,437 / $344,199


Cash ratio2010 = 0.09 times

d. The debt-equity ratio is calculated as:

Debt-equity ratio = Total debt / Total equity


Debt-equity ratio = (Current liabilities + Long-term debt) / Total equity

Debt-equity ratio2009 = ($284,942 + 247,000) / $341,601


Debt-equity ratio2009 = 1.56

Debt-equity ratio2010 = ($344,199 + 183,750) / $372,879


Debt-equity ratio2010 = 1.42
Answer to Chapter 3 Review
And the equity multiplier is:

Equity multiplier = 1 + Debt-equity ratio

Equity multiplier2009 = 1 + 1.56


Equity multiplier2009 = 2.56

Equity multiplier2010 = 1 + 1.42


Equity multiplier2010 = 2.42

e. The total debt ratio is calculated as:

Total debt ratio = Total debt / Total assets


Total debt ratio = (Current liabilities + Long-term debt) / Total assets

Total debt ratio2009 = ($284,942 + 247,000) / $873,543


Total debt ratio2009 = 0.61

Total debt ratio2009 = ($344,199 + 183,750) / $900,828


Total debt ratio2009 = 0.59
Chapter 3 Review 2
Chapter 3 Review 2

1. Prepare a common-size income statement


based on this information.
2. calculate the ratios for 2002:

Market Price per share = PPS= $44


Shares outstanding = 16 million
Answer to Chapter 3 Review 2
Answer to Chapter 3 Review 2

Current ratio = $853/$1,725 = .49 times


Quick ratio = $525/$1,725 = .30 times
Cash ratio = $215/$1,725 = .12 times

Total debt ratio = $4,033/$7,380 = .55 times


Debt-equity ratio = .55/.45 = 1.2 times
Equity multiplier = 1/ .45 = 2.2 times
Answer to Chapter 3 Review 2

Inventory turnover = $2,780/$328 = 8.48 times


Receivables turnover = $4,053/$310 = 13.07 times
Total assets turnover = $4,053/$7,380= 0.55 times

Profit margin = $146/$4,053 = 3.6%


Return on assets ROA = $146/$7,380 = 1.98%
Return on equity ROE = $146/$3,347 = 4.4%
Answer to Chapter 3 Review 2

Price-earnings ratio= PPS / EPS

Earnings per Share = EPS = NI / Shares outstanding


146/16 = $9.125

Price-earnings ratio= $44/9.125= 4.82 times

Market-to-book ratio = PPS / Book value per share

Book value per share = Total Equity/shares outstanding


= $2,591/16 = $161.93
Market-to-Book = $44/161.93 = 0.27 times
Answer to Chapter 3 Review 2

b: Retention ratio = RE/ NI = 99/146 = 0.678 = 68%


b: Retention ratio = 1- dividend Payout ratio
= 1- 47/146 = 1- 32%
= 68%

Internal growth rate= ROA*b / 1-ROA*b


=0.0198*0.678/1-0.0198*0.678
= 1.36%

Sustainable growth rate = ROE*b / 1-ROE*b


= 0.044*0.678 / 1- 0.044*0.678
= 3.07%
Quick Review

2-16
1. Russell's Hardware has inventory of $218,000,
equity of $421,800, total assets of $647,700, and sales
of $587,200. What is the common-size percentage for
the inventory account?
A. 26.81 percent
B. 33.66 percent
C. 37.12 percent
D. 49.09 percent
E. 51.68 percent

Inventory common-size percent = $218,000/$647,700 = 33.66


percent

2-17
2. Foreign Travel Services has net income of $48,400,
total assets of $219,000, total equity of $154,800, and
total sales of $311,700. What is the common-size
percentage for the net income?
A. 9.00 percent
B. 13.90 percent
C. 15.53 percent
D. 22.10 percent
E. 31.27 percent

Net income common-size percent = $48,400/$311,700 =


15.53 percent

2-18
3. Healthy Foods has total assets of $129,800, net fixed
assets of $71,500, long-term debt of $52,000, and total
debt of $78,700. If inventory is $31,800, what is the
current ratio?
A. 0.33
B. 0.46
C. 0.84
D. 1.18
E. 2.18

Current ratio = ($129,800 - $71,500)/($78,700 - $52,000) =


2.18

2-19
4. Your firm has cash of $3,800, accounts receivable of
$9,600, inventory of $33,100, and net working capital of
$1,100. What is the cash ratio?
A. 0.04
B. 0.08
C. 0.87
D. 1.21
E. 3.45

Cash ratio = $3,800/($3,800 + $9,600 + $33,100 - $1,100) =


0.08

2-20
5. The Global Network has sales of $418,700, cost of
goods sold of $264,900, and inventory of $61,900. What
is the inventory turnover rate?
A. 1.33
B. 4.28
C. 6.76
D. 7.14
E. 8.47

Inventory turnover = $264,900/$61,900 = 4.28

2-21
6. The common stock of The Burger Hut is selling for
$16.25 a share. The company has earnings per share of
$0.42 and a book value per share of $9.28. What is the
market-to-book ratio?
A. 1.58
B. 1.69
C. 1.75
D. 1.87
E. 1.92

Market-to-book ratio = $16.25/$9.28 = 1.75

2-22
Chapter 3

END

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