Week Five Exercise Assignment Essay Example for Free

Week Five Exercise naming EssayLiquidity symmetrys. Edison, Stagg, and Thornton incur the following financial information at the close of business on July 10EdisonStaggThornton property$6,000$5,000$4,000Short-term investments3,0002,5002,000Accounts receivable2,0002,5003,000Inventory1,0002,5004,000Prepaid expenses800800800Accounts collectablecccc200Notes payable short-term3,1003,1003,100Accrued payables300300300Long-term liabilities3,8003,8003,800a. Compute the current and brisk ratios for each of the three companies. (Round calculations to devil 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 accepted Assets12,800.0013,300.0013,800.00AccountEdisonStaggThorntonAccounts payable200.00200.00200.00Notes payable3,100.003,100.003,100.00Accrued payables300.00300.003 00.00Total 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 company is Edison because they have the most access if necessary.2. Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc20X520X4 acquit trust sales$832,000$760,000 bell of goods sold530,000four hundred,000Cash, Dec. 31125,000110,000Average Accounts receivable205,000156,000Average Inventory70,00050,000Accounts payable, Dec. 31115,000108,000 instructionsa. Compute the accounts receivable and inventory turnover ratios for 20X5. Alaska rounds all calculations to two decimal places.Accounts Receivable Ratio = shed light on Credit gross 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(prenominal) preferred and common stock outstanding. The company reported the following information for 20X7Net sales$1,750,000Interest expense120,000Income tax expense80,000Preferred dividends25,000Net income130,000Average assets1,200,000Average common stockholders equity500,000a. Compute the mesh margin on sales ratio, the return on equity and the return on assets, rounding calculations to two decimal places. b. Does the firm have despotic or negative financial leverage? Briefly 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 net prof it ratio states Digital Relay made a 9% profit off its sales.4. Horizontal analysis. Mary Lynn Corporation has been in operation(p) 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 Liabilities40,80048,000Long-Term Liabilities153,000160,000Stockholders Equity16,20012,000Net Sales500,000500,000 follow of Goods Sold322,500350,000Operating Expenses93,50085,000a. organise a horizontal analysis for 20X1 and 20X2. Briefly comment on the results of your work.Horizontal Analysis202201Difference% varietyCurrent 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 Liabilities183,800.0 0208,000.00-24,200.00-11.63%Stockholders Equity16,200.0012,000.004,200.0035.00%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 reduced its liabilities which is good but also decreased its assets and costs of goods sold. The operating expenses increased and kept the same fall 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 Liabilities1 53,000150,000Stockholders 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 Lone waste familiarity follow.LONE PINE come withComparative Balance SheetsDecember 31, 20X2 and 20X1 ($000 Omitted)20X220X1AssetsCurrent AssetsCash and Short-Term Investments$400$600Accounts Receivable (net)3,00 02,400Inventories3,0002,300Total Current Assets$6,400$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 collectible$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$200 carry 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 Paid3,100Retained 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 interest is bring in 15