Question 1

At the end of 2010,Jared Corporation reported a return on assets of 16%; net income of $42,000; average total assets of $365,000,and average total liabilities of $165,000.What was Jared's financial leverage percentage?

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Question 2

The records of Washington Company showed the following:
 $\begin{array}{lr}
\text { Average Assets } & \$ 230,000& \text { Revenues } & \$ 100,000  \
\text { Average Liabilities } & 130,000 & \text { Expenses** } & (81,000) \
\text { Average Stockholders } & 100,000  & \text { Interest expense } & (2,000)\
\text { equity* } &\
&&\text { Net income } & (\$ 17,000)
\end{array}$

*10,000 shares outstanding; current market price,$30
**Including income tax; income tax rate,30%
Calculate each of the following ratios:
A.Return on assets
B.Return on equity
C.Financial leverage percentage
D.Is the financial leverage percentage positive or negative?

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Question 3

The 2010 financial statements of Companies Y and Z showed the following:

$$\begin{array}{l}
\begin{array} { l }
\underline { \text { Item } } \
\text { Net sales revenue } \
\text { Profit margin }\
\text { Total average assets }\
\text { Financial leverage percentage } \
\text { Interest expense (net of tax) }
\end{array}
\begin{array} { l } 
 \quad \quad \quad\underline { \text { Company } } \
\underline{\underline{Y}} & \underline{Z} \
\$ 150,000 & \$ 200,000 \
6 \% & 5 \% \
\$ 40,000 & \$ 80,000 \
+4 \% & +3 \% \
\$ 1,000 & \$ 800
\end{array}
\end{array}$$

Part A:
 For each company,calculate the items listed in the following tabulation.  Part B:
 Assuming both Company Y and Company Z are in the same industry,which company (Y or Z)appears to be the better investment and why?

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Question 4

The following data were reported for Favre Company:
 $$\begin{array} { l l } 
\text { Net income } & \$ 275,000 \
\text { Total dividends declared and paid on common stock } & \$ 0.60 \text { per share } \
\text { Common stock, par } \$ 10 & \$ 1,750,000 \
\text { Market price } & \$ 20.00 \text { per } \
& \text { share } \
\text { Cash flows from operating activities } & \$ 280,000
\end{array}$$ Calculate each of the following ratios:
A.Dividend yield
B.Price/earnings ratio
C.Quality of income

Accepted Answer

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Question 5

The following return on investment ratios were computed for Steven Company:
 $$\begin{array} { l l l l l l } 
& \underline{2010} & \underline{2009}& \underline{2008} &2007\
\text { Return on assets } & { 12 \% } &  { 15 \% } &  { 15 \% } & { 18 \% } \
\text { Return on equity } & 12 \% & 15 \% & 11 \% & 20 \%
\end{array}$$ Requirements:
A.Compute financial leverage percentage for each year.
B.Explain briefly the stockholders' advantage or disadvantage for each year.

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Question 6

Longhorn Company reported the following data at year-end:
 $$\begin{array} { l r } 
\text { Total stockholders' equity } & \$ 200,000 \
\text { Current liabilities } & 75,000 \
\text { Total assets } & 350,000 \
\text { Current assets } & 80,000 \
\text { Common stock (par } \$ 10 ) & 125,000
\end{array}$$ Calculate each of the following ratios:
A.Debt to equity
B.Current ratio

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Question 7

The following data were available for Holiday Company:
Sales revenue,$225,000 (including $75,000 cash sales)
Cost of goods sold,$175,000
Average balance in inventory,$20,000
Average balance in accounts receivable,$20,000
Assume 365 days in the year
Calculate each of the following ratios:

Accepted Answer

The answer of The following data were available for Holiday...

Question 8

Packers Corporation reported the following data for the year ended December 31,2010:
 $$\begin{array} { l r } 
\text { Net sales revenue } & \$ 400,000 \
\text { Net income } & \$ 25,000 \
\text { Interest expense (net of tax) } & \$ 3,000 \
\text { Average total assets } & \$ 200,000 \
\text { Average stockholders' equity } & \$ 160,000 \
\text { Average net fixed assets } & \$ 100,000 \
\text { Average shares of common stock outstanding } & 15,000 \
\text { Market value per share } & \$ 16.00
\end{array}$$ Calculate each of the following ratios:
A.Profit margin
B.Return on assets
C.Return on equity
D.Earnings per share
E.Price/earnings ratio
F.Debt-to-equity ratio
G.Financial leverage percentage
H.Fixed asset turnover ratio

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Question 9

The following data were reported by Universe Company at year-end:
 $$\begin{array} { l r } 
\text { Total assets } & \$ 525,000 \
\text { Quick assets } & 105,000 \
\text { Noncurrent assets } & 375,000 \
\text { Current liabilities } & 75,000 \
\text { Long-term liabilities } & 75,000 \
\text { Common stock (par } \$ 10 ) & 170,000 \
\text { Total owners' equity } & 375,000
\end{array}$$ Calculate each of the following ratios:
A.Debt-to-equity
B.Current ratio
C.Quick ratio
D.Which,if any,of the above are liquidity ratios?
E.Which,if any,of the above are profitability ratios?

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Question 10

Indicate the effect of each item on the ratios given below in the following manner:
 if an item would cause an increase in the ratio,place a check in the + column; if a decrease place a check in - column; and if no change,check the 0 column.Each item is independent of the others.

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Question 11

At the end of 2010,Doran Corporation reported net income of $70,000,gross sales revenue of $1,525,000,and sales returns of $125,000.Calculate the profit margin ratio.

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Question 12

Complete the following income statement (both dollar amounts and component percentages): $\begin{array}{ll}
&& \text { Component  }\
& \text { Amount }& \text { Percentage }\
\text { Sales revenue } & \$&\%\
\text { Cost of goods sold } & &40\% \
\text { Gross margin } & \$ 120,000 \
\text { Operating expenses } & \
\text { Interest expense } & &2\%\
\text { Income (before income tax) } & \
\text { Income tax expense (rate 20\%) } & \
\text { Net income }&&6\%
\end{array}$

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Question 13

MNF Corporation gathered the following data at the end of the accounting period,December 31,2009:
 $\begin{array}{lrl}
\text { Net income } & \$ 60,000 \
\text { Net sales revenue } & 1,200,000 \
\text { Interest expense } & 25,000 \
\text { Total liabilities } & 200,000 \
\text { Average stockholders' equity }(50,000 \text { shares } & 300,000 \
\text { outstanding) } & \
\text { Dividends declared and paid during } 2009 & 22,500 \
\text { Market price per share of stock at year end } & 9 \
\text { Average income tax rate } &40\% \
\text { Requirements } &
\end{array}$ Part 1:
 Calculate each of the following ratios:
A.Profit margin
B.Return on equity
C.Earnings per share
D.Dividend yield ratio
E.Price/earnings ratio
F.Return on assets
G.Financial leverage percentage
Part 2:
 Interpret the financial leverage percentage.

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The answer of MNF Corporation gathered the following data at...

Question 14

The following data were shown in the records of Victoria Company at the end of 2010:
 $$\begin{array} { l r } 
\text { Quick assets } & \$ 180,000 \
\text { Current assets } & 225,000 \
\text { Average net receivables } & 10,000 \
\text { Average inventory } & 42,000 \
\text { Current liabilities } & 50,000 \
\text { Net credit sales } & 120,000 \
\text { Cost of goods sold } & 84,000 \
\text { Assume } 365 \text { days in the year } &
\end{array}$$ Calculate each of the following ratios:
A.Quick ratio
B.Current ratio
C.Receivable turnover ratio
D.Inventory turnover ratio
E.Average age of receivables
F.Average days' supply in inventory

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The answer of The following data were shown in the...

Question 15

Polk Corporation reported the following information related to its common stock (par $10)outstanding and net income:
 $$\begin{array} { l r } 
\text { Total stockholders' equity (no preferred stock) } & \$ 125,000 \
\text { Current market price per share of common stock } & 40 \
\text { Dividends declared and paid during } 2011 & 10,000 \
\text { Balance in the common stock account } & 40,000 \
\text { Net income } & 35,000
\end{array}$$ Calculate each of the following ratios:
A.Price/earnings ratio
B.Dividend yield

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Question 16

Walkers World Company gathered the following information for 2010:
 $$\begin{array} { l r } 
\text { Total sales revenue ( } 65 \% \text { on credit) } & \$ 432,000 \
\text { Cost of goods sold } & 231,000 \
\text { Sales returns and allowances (on credit) } & 44,000 \
\text { Accounts receivable at end of } 2010 ( \$ 30,000 & 100,000 \
\text { increase during } 2010 ) & \
\text { Allowance for doubtful accounts: } & \
\text { Beginning of } 2010 & 7,000 \
\text { End of } 2010 & 28,000 \
\text { Merchandise inventory at end of } 2010 ( \$ 10,000 & \
\text { decrease during } 2010 ) &
\end{array}$$ Assume 365 days in the year.
Calculate each of the following ratios:
A.Receivable turnover ratio
B.Average number of days to collect
C.Inventory turnover ratio
D.Average number of days' supply of inventory

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Question 17

The following financial data are available for Murphy Company:
 $$\begin{array} { l r } 
\text { Operating income } & \$ 236,500 \
\text { Net income } & 196,300 \
\text { Earnings per share } & 2.45 \
\text { Dividends paid per share } & 1.25 \
\text { Average common stockholders' equity } & 985,000 \
\text { Average total assets } & 1,870,000 \
\text { Current market price per share } & 24.50 \
\text { Book value per share } & 12.30
\end{array}$$ Calculate each of the following ratios:
A.Return on equity
B.Price/earnings ratio
C.Dividend yield

Accepted Answer

The answer of The following financial data are available for...

Question 18

Carolina Company computed the following ratios for a two year period:
 $$\begin{array} { l l c c } 
& \underline { \text { Ratio } } & \underline { 2009 } & \underline { 2010 } \
\text { A. } & \text { Current ratio } & 1.3 \text { to } 1 & .6 \text { to } 1 \
\text { B. } & \text { Return on equity } & 25 \% & 16 \% \
\text { C. } & \text { Quality of income } & 1.7 & .5 \
\text { D. } & \text { Cash coverage ratio } &  346& 122 \
\text { E. } & \text { Profit margin } &6 \% & 4 \%
\end{array}$$ Required:
Comment on the trend of each of the ratios from 2009 to 2010.State concerns or possible implications for the future of each.

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Question 19

Compete Corporation reported a quick ratio of 1.75,current assets of $50,000 and a current ratio of 2.
Requirements:

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Quiz 14: Analyzing Financial Statements

At the end of 2010,Jared Corporation reported a return on assets of 16%; net income of $42,000; average total assets of $365,000,and average total liabilities of $165,000.What was Jared's financial leverage percentage?

The following data were available for Holiday Company: Sales revenue,$225,000 (including $75,000 cash sales) Cost of goods sold,$175,000 Average balance in inventory,$20,000 Average balance in accounts receivable,$20,000 Assume 365 days in the year Calculate each of the following ratios:

Indicate the effect of each item on the ratios given below in the following manner: if an item would cause an increase in the ratio,place a check in the + column; if a decrease place a check in - column; and if no change,check the 0 column.Each item is independent of the others.

At the end of 2010,Doran Corporation reported net income of $70,000,gross sales revenue of $1,525,000,and sales returns of $125,000.Calculate the profit margin ratio.

Compete Corporation reported a quick ratio of 1.75,current assets of $50,000 and a current ratio of 2. Requirements: