A companyâs financial statements consist of the balance sheet, income statement, and statement of cash flows. Describe what each statement tells us and their limitations.
What is the purpose and importance of financial analysis? What are financial ratios? Describe the âfive-question approachâ to using financial ratios. What are the limitations of financial ratio analysis? If we divide users of ratios into short-term lenders, long-term lenders, and stockholders, in which ratios would each group be most interested, and for what reasons?
A companyâs financial statements consist of the balance sheet, income statement, and statement of cash flows. Describe what each statement tells us and their limitations.
What is the purpose and importance of financial analysis? What are financial ratios? Describe the âfive-question approachâ to using financial ratios. What are the limitations of financial ratio analysis? If we divide users of ratios into short-term lenders, long-term lenders, and stockholders, in which ratios would each group be most interested, and for what reasons?
Related questions
1. Discuss the importance of financial statements and how they are used by businesses.
2. What is the basic format of the income statement and what is the relevance of the basic categories?
3. Cash flows for an organization come from operating activities and investment activities. Discuss the importance of each to the organization.
The Happy Auto Shop has the following annual information:
| Gross Sales | $700,000 |
| Net sales | $696,000 |
| Gross profit | $448,000 |
What are the shopâs returns and allowances and cost of goods sold?
Construct a statement of financial position (balance sheet) for the Humperdink family using the following information:
| cash | $50 |
| Checking account | $2,500 |
| student loan balance | $6,000 |
| stocks and bonds | $2,600 |
| savings account | $5,850 |
| residence | $110,000 |
| automobile | $12,000 |
| savings account | $5,800 |
| automobile loan balance | $12,000 |
| 401K retirement account | $15,000 |
| furniture, clothing, jewelry | $8,000 |
| credit card balance | $4,000 |
| mortgage loan balance | $99,000 |
What is the purpose of financial statement analysis? How do the three types of financial statement analysis differ from each other and when is each used?
Samantha Knight is applying for a small-business loan. She provides the bank with the following information:
| cash in checking accounts | $5,000 |
| cash in savings | $10,350 |
| home market value | $145,500 |
| first mortgage on house | $25,000 |
| home equity loan limit | $70,000 |
| home equity loan | $10,000 |
| automobile market value | $19,000 |
| automobile loan outstanding | $15,000 |
| credit card debt | $1,500 |
Calculate the debt-to-asset ratio.
Calculate the debt-to-equity ratio.
What percentage of Samantha's assets is owned by others?
Given the profit loss (income statement) and balance sheet for Sam's Sandwich Delivery (Table 4-8, page 121 of your textbook), answer the following:
Calculate the following ratios: current, quick, accounts receivable turnover, fixed asset turnover.
Using the inventory figure on the balance sheet as average inventory, calculate the inventory turnover ratio.
Calculate the debt-to-equity ratio, debt-to-total asset ratio, and operating profit margin ratio.
Perform a vertical analysis of the income statement.
Perform a vertical analysis of the balance sheet.
Based on your analysis, would you consider investing in Sam's Sandwich Delivery?
1.Use financial statements that are in the attached document to calculate the financial ratios presented.
2. Prepare and interpret an analysis of the financial ratios showing the company.
3. Summarize the findings and make recommendations.
4. Du Pont method is used to determine the return on equity. This result tells us?
Zumba Production Inc.
Income Statement
Year Ended December 31,2017
| Sales | $160,000 | ||
| Cost of Goods Solds: | |||
| Merchandise Inventory, Jan 1,2013 | $208,400 | ||
| Purchases (net) | 37,320 | ||
| Goods Available for Sale | $171,080 | ||
| Merchandise Inventory, Dec. 31, 2013 | 65,080 | ||
| Cost of Goods Sold | 106,000 | ||
| Gross Profit | $54,000 | ||
| Operating Expenses | 37,000 | ||
| Income from Operations | $17,000 | ||
| Other Income and Expense: | |||
| Interest Expense | 6,1000 | ||
| Income before Tax | $10,900 | ||
| Income Tax Expense | 4,360 | ||
| Net Income | $6,540 |
Zumba Production Inc.
Balance Sheet
Year Ended December 31, 2017
| Cash | $500 | |
| Marketable Securities | 1,000 | |
| Accounts Receivable | 25,000 | |
| Merchandise Inventory | 45,500 | |
| Property, Plant, and Equipment (net) | 60,000 | |
| Furniture and Fixtures | 18,000 | |
| Total Assets | $150,000 | |
| Accounts Payable | $22,000 | |
| Notes Payable | 40,000 | |
| Accrued Salaries Payable | 7,000 | |
| Long-Term Debt | 22,950 | |
| Common Stock ($10-par) | 31,500 | |
| Retained Earnings | 26,550 | |
| Total Liabilities and Stockholders Equity | $150,000 |
The following financial ratios are presented according to the market where it competes Zumba Production Inc.
| Ratio | Market | Zumba Production |
| a. Current ratio | 1.80 | |
| b. Quick ratio | 0.70 | |
| c. Inventory turnover * | 2.50 | |
| d. Average collection period * | 37.5 days | |
| e. Debt ratio | 65% | |
| f. Times interest earned ratio | 3.80 | |
| g. Gross profit margin | 38% | |
| h. Net profit margin | 3.50% | |
| i. Return on total sales | 4.00% | |
| j. Return on common equity | 9.50% | |
| k. Market/ Book ratio | 1.10 | |
| l. Working Capital | $5,000 | |
| *Based on 365 days a year |
