Exercise 1
Identify each of the following as (a) an underlying concept, (b) an objective of financial statement analysis, (c) a standard for financial statement analysis, (d) a source of information for financial statement analysis, or an executive compensation issue:
-
Past Ratios of the company
-
Linking performance to shareholder value
-
Average ratios of other companies in the same industry
-
Assessment of the future potential of an investment
-
Timeliness
-
Interim financial statements
-
SEC Form 10-K
-
Assessment of rick
-
Comparability
-
A company’s annual report
Exercise 7
Elm Company had total assets of $640,000 in 2012. $680,000 in 2013, and $760.000 in 2014. In 2013, Elm had net income of $77,112 on revenues of $1,224,000. In 2014, it had net income of $98,952 on revenues of $1,596,000. Compute the profit margin, asset turnover, and return on assets for 2013 and 2014. Comment on the apparent cause of the increase or decrease in profitability. (Round to one decimal place).
Exercise 12
Components of Van Corporation’s income statement for the year ended December 31, 2014 follow. Recast the income statement in multiple step form, including allocating income taxes to appropriate items (assume a 30 percent income tax rate) and showing earnings per share figures (200,000 shares outstanding). (Round earnings per share figures to the nearest cent.)
Sales $1,110,000
Cost of goods sold (550,000)
Operating expenses (225,000)
Restructuring (110,000)
Total income taxes expense for period (179,000)
Income from discontinued operations 160,000
Gain on disposal of discontinued operations 140,000
Extraordinary gain 72,000
Net income $417,900
Earnings per share $ 2.09
Problem 1
Obras Corporation’s condensed comparative income statements and comparative balance sheets for 2014 and 2013 follow.
Obras Corporation
Comparative Income Statements
For the Years Ended December 31, 2014 and 2013
2014 2013
Net sales $3,276,800 $3,146,400
Cost of goods sold 2,088,800 2,008,400
Gross margin $1,188,000 $1,138,000
Operating expenses:
Selling expenses $476,800 $518,000
Administrative expenses 447,200 423,200
Total operating expenses $924,000 $941,200
Income from operations $264,000 $196,800
Interest expense 65,600 39,200
Interest before income taxes $198,400 $157,600
Income taxes expense 62,400 56,800
Net income $136,000 $100,800
Earnings per share $ 3.40 $ 2.52
Obras Corporation
Comparative Balance Sheets
December 31, 2014 and 2013
2014 2013
Assets
Cash $81,200 $40,800
Accounts receivable (net) 235,600 229,200
Inventory 574,800 594,800
Property, plants and equipment (net) 750,000 720,000
Total assets $1,641,600 $1,584,800
Liabilities and Stockholders’ Equity
Accounts payable $267,000 $477,200
Notes payable (short-term) 200,000 400,000
Bonds payable 400,000 —
Common stock, $10 par value 400,000 400,000
Retained earnings 374,000 307,600
Total liabilities and stockholders’ equity $ 1,641,600 $1,584,800
REQUIRED:
-
Prepare schedules showing the amount and percentage changes from 2013 to 2014 for the comparative income statements and the balance sheets (Round to the one decimal place.)
-
Prepare common-size income statements and balance sheets for 2013 and 2014. (Round to the one decimal place).
-
Comment on the results in requirements 1 and 2 by identifying favorable and unfavorable changes in the components and composition of the statements.
Problem 3
Tuxedo Corporation’s condensed comparative income statements and balance sheets follow. All figures are given in thousands of dollars, except for earnings per share.
Tuxedo Corporation
Comparative Income Statements
For the Years Ended December 31, 2014 and 2013
2014 2013
Net sales $800,400 $742,600
Cost of goods sold 454,100 396,200
Gross margin $346,300 $346,400
Operating expenses:
Selling expenses $130,100 $104,600
Administrative expenses 140,300 115,500
Total operating expenses $270,400 $220,100
Income from operations $ 75,900 $126,300
Interest expense 25,000 20,000
Income before income taxes $ 50,900 $106,300
Income taxes expense 14,000 35,000
Net income $ 36,900 $ 71,300
Earnings per share $ 2.46 $ 4.76
Tuxedo Corporation
Comparative Balance Sheets
December 31, 2014 and 2013
2014 2013
Assets
Cash $ 31,100 $ 27,200
Accounts receivable (net) 72,500 42,700
Inventory 122,600 107,800
Property, plant, and equipment (net) 577,700 507,500
Total assets $803,900 $685,200
Liabilities and Stockholders’ Equity
Accounts payable $104,700 $ 72,300
Notes payable (short-term) 50,000 50,000
Bonds payable 200,000 110,000
Common stock, $10 par value 300,000 300,000
Retained earnings 149,200 152,900
Total liabilities and stockholders’ equity $803,900 $685,200
Additional data for Tuxedo in 2014 and 2013 follow:
2014 2013
Net cash flows from operating activities $ 64,000 $ 99,000
Net capital expenditures $119,000 $ 38,000
Dividends paid $31,400 $35,000
Number of common shares 30,000 30,000
Market price per share $80 $120
Balances of selected accounts at the end of 2012 were accounts receivable (net), $52,700; inventory, $99,300; accounts payable, $64,800; total assets, $647,800; and stockholders’ equity, $376,600. All of the bonds payable were long-term liabilities.
REQUIRED:
Perform the following analyses. (Round to one decimal place.)
-
Prepare an operating asset management analysis by calculating for each year the (a) current ratio, (b) quick ratio, (c) receivables turnover, (d) days’ sales uncollected, (e) inventory turnover, (f) days’ inventory on hand, (g) payables turnover, (h) days’ payable, and (i) financing period.
-
Prepare a profitability and total asset management analysis by calculating for each year the (a) profit margin, (b) asset turnover, and (c) return on assets.
-
Prepare a financial risk analysis by calculating for each year the (a) debt to equity ratio, (b) return on equity, and (c) interest coverage ratio.
-
Prepare a liquidity analysis by calculating for each year the (a) cash flow yield, (b) cash flows to sales, (c) cash flows to assets, and (d) free cash flow.
-
Prepare an analysis of market strength by calculating for each year the (a) price/earnings (P/E) ratio and (b) dividend yield.
-
Accounting connection: After making the calculations, indicate whether each ratio improved or deteriorated from 2013 to 2014 (use F for favorable and U for unfavorable and consider changes of 0.1 or less to be neutral).
0 comments