Refer to the worksheets in Exhibits 10.12 and 10.13 in which the financial statements of Arcot Company have been restated to U.S. GAAP.
Required:
a. Calculate each of the ratios listed below using (1) the Local GAAP amounts in Column 1, and (2) the U.S. GAAP amounts in Column 4.
b. Determine the percentage difference in each of these ratios using the formula: (U.S. GAAP ratio - Local GAAP ratio)/Local GAAP ratio.
c. Determine which ratios appear to be most and least affected by differences in the two sets of accounting principles.
Ratios
Current ratio (Current assets/Current liabilities)
Total asset turnover (Sales/Total assets at year-end)
Debt-to-equity ratio (Total liabilities/Total stockholders' equity)
Times interest earned ([Income before income taxes + Interest expense]/
Interest expense) Profit margin (Net income/Sales)
Return on equity (Net income/Average total stockholders' equity) Operating profit margin (Operating income/Sales)
Operating income as a percentage of total stockholders' equity (Operating income / Average total stockholders' equity)