Week Five Exercise Assignment Essay Example for Free

Week Five Exercise Assignment EssayLiquidity ratios. Edison, Stagg, and Thornton have the following financial information at the close of bank line on July 10EdisonStaggThorntonCash$6,000$5,000$4,000Short-term investments3,0002,5002,000 floors receivable2,0002,5003,000Inventory1,0002,5004,000Prepaid expenses800800800Accounts payable200200200Notes payable short-term3,1003,1003,100Accrued payables three hundred300300Long-term liabilities3,8003,8003,800a. Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most liquid? Why? AccountEdisonStaggThorntonCash6,000.005,000.004,000.00Short term investments3,000.002,500.002,000.00Accounts receivable2,000.002,500.003,000.00Inventory1,000.002,500.004,000.00Prepaid Expense800.00800.00800.00Total on-line(prenominal) Assets12,800.0013,300.0013,800.00AccountEdisonStaggThorntonAccounts payable200.00200.00200.00Notes payable3,100.003,100.003,100.00Accrued payables300.00 300.00300.00Total Current Liabilities3,600.003,600.003,600.00EdisonCurrent ratio 12,800.00 / 3,600.00 = 3.56Quick ratio (6,000 + 3,000 + 2,000) =3.06StaggCurrent ratio 13,300.00 / 3,600.00 =3.69Quick ratio (5,000.00 + 2,500.00 + 2,500.00)/ 3,600.00 = 2.78ThorntonCurrent ratio 13,800.00 / 3,600.00 = 3.83Quick ratio (4,000.00 + 2,000.00 + 3,000.00) / 3,600 =2.5The most liquid club is Edison because they have the most access if necessary.2. Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc20X520X4Net credit sales$832,000$760,000Cost of goods sold530,000400,000Cash, Dec. 31125,000110,000Average Accounts receivable205,000156,000Average Inventory70,00050,000Accounts payable, Dec. 31115,000108,000Instructionsa. Compute the accounts receivable and inventory turnover ratios for 20X5. Alaska rounds all calculations to two decimal places.Accounts Receivable dimension = Net Credit Sales / Average Accounts Receivable $832,000 / 205,000 = 4. 10 Inventory Turnover Ratio = Net Credit Sales / Average Accounts Receivable $530,000 / 70,000 =7.60 (205,000 + 156,000) / 2 = 180,500(70,000 + 50,000) / 2 =60,0003. Profitability ratios, trading on the equity. Digital Relay has both preferred and common stock outstanding. The company reported the following information for 20X7Net sales$1,750,000 affair expense120,000Income tax expense80,000Preferred dividends25,000Net income130,000Average assets1,200,000Average common stockholders equity500,000a. Compute the profit margin on sales ratio, the take back on equity and the return on assets, rounding calculations to two decimal places. b. Does the firm have positive or negative financial leverage? in short explain. Profit Margin = 130,000/1,7500,00 =7.43%Return on equity = 130,000/5,000=26%Return on assets = 130,000/1,200,000=10.83%(120,000 + 80,000 + 130,000) / (80,000 + 130,000) =1.57It has a positive financial leverage of around 1.57 times.The meshing profit ratio states Digital Re lay made a 9% profit off its sales.4. Horizontal analysis. Mary Lynn plenty has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow.20X220X1Current Assets$86,000$80,000Property, Plant, and Equipment (net)99,00090,000Intangibles25,00050,000Current Liabilities40,80048,000 long-run Liabilities153,000160,000Stockholders honor16,20012,000Net Sales500,000500,000Cost of Goods Sold322,500350,000 operate Expenses93,50085,000a. Prepare a horizontal analysis for 20X1 and 20X2. short comment on the results of your work.Horizontal Analysis202201Difference%ChangeCurrent Assets86,000.0080,000.00-4,000.00-5.00%Property, Plant, and Equipment (net)99,000.0090,000.009,000.0010.00%Intangiables25,000.0050,000.00-25,000.00-50.00%Total Assets200,000.00220,000.0020,000.00-9.09%Current Liabilities40,800.0048,000.00-7,200.00-15.00%Long Term Liabilities143,000.00160,000.00-17,000.00-10.63%Total Liabilities183,800.00208,000.00-24,200.00-11.63%Stockholders fairn ess16,200.0012,000.004,200.0035.00%Total Liabilities and Stockholders Equity200,000.00220,000.00-20,000.00-9.09%Net Sales500,000.00500,000.000.000.00%Cost of Goods Sold332,500.00350,000.00-17,500.00-5.00%Gross Profit167,500.00150,000.0017,500.0011.67%Operating Expense935,000.0085,000.008,500.0010.00%Net Income74,000.0065,000.009,000.0013.85%(4,000) / 80,000 =-5%The company diminish its liabilities which is good but also decreased its assets and costs of goods sold. The operating expenses increased and kept the same amount of net sales. Their Stockholders Equity increased so theywere able to purchase additional equipment, property, and plant.5.Vertical analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow.20X220X1Current Assets$86,000$80,000Property, Plant, and Equipment (net)99,00080,000Intangibles25,00050,000Current Liabilities40,80048,000Long-Term Liabilities153,000150,000Stockholders Equity16,20012, 000Net Sales500,000500,000Cost of Goods Sold322,500350,000Operating Expenses93,50085,000a. Prepare a vertical analysis for 20X1 and 20X2. Briefly comment on the results of your work.Current Assets15.20%16.00%Property, Plant, and Equipment19.80%18.00%Intangibles5.00%10.00%Current Liabilities8.16%9.60%Long term Liabilities28.60%32.00%Stockholders Equity3.24%2.40%Net Sales100.00%100.00%Cost of Goods Sold66.50%70.00%Operating Expenses18.70%17.00%It seems as if the findings were the same as in the horizontal analysis. There is a difference, which is, seeing the sections changed based upon the previous. There is a 35% increase in the Stockholders Equity which is great for the company. 6. Ratio computation. The financial statements of the LonePine Company follow.LONE suffer COMPANYComparative Balance SheetsDecember 31, 20X2 and 20X1 ($000 Omitted)20X220X1AssetsCurrent AssetsCash and short Investments$400$600Accounts Receivable (net)3,0002,400Inventories3,0002,300Total Current Assets$6,40 0$5,300Property, Plant, and EquipmentLand$1,700$500Buildings and Equipment (net)1,5001,000Total Property, Plant, and Equipment$3,200$1,500Total Assets$9,600$6,800Liabilities and Stockholders EquityCurrent LiabilitiesAccounts Payable$2,800$1,700Notes Payable1,1001,900Total Current Liabilities$3,900$3,600Long-Term LiabilitiesBonds Payable4,1002,100Total Liabilities$8,000$5,700Stockholders EquityCommon Stock$200$200Retained Earnings1,400900Total Stockholders Equity$1,600$1,100Total Liabilities and Stockholders Equity$9,600$6,800LONE PINE COMPANYStatement of Income and Retained EarningsFor the Year Ending December 31,20X2 ($000 Omitted)Net Sales*$36,000Less Cost of Goods Sold$20,000Selling Expense6,000administrative Expense4,000Interest Expense400Income Tax Expense2,00032,400Net Income$3,600Retained Earnings, Jan. 1900Ending Retained Earnings$4,500Cash Dividends Declared and nonrecreational3,100Retained Earnings, Dec. 31$1,400*All sales are on account.InstructionsCompute the following items for Lone Pine Company for 20X2, rounding all calculations to two decimal places when necessary a. Quick ratio 1.17b. Current ratio 1.86c. Inventory-turnover ratio 10d. Accounts-receivable-turnover ratio 13.33e. Return-on-assets ratio 0.51f. Net-profit-margin ratio 0.1g. Return-on-common-stockholders equity 2.67h. Debt-to-total assets 0.81i. Number of times that enkindle is earned 15