Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1. Liquidity and Solvency Measures Computations Working capital $3,095,000 - $840,000 Current ratio $3,095,000 = $840,000 Quick ratio $1,866,000 = $840,000 Accounts receivable turnover $8,270,000

image text in transcribedimage text in transcribedimage text in transcribedimage text in transcribed

1.

Liquidity and Solvency Measures Computations Working capital $3,095,000 - $840,000 Current ratio $3,095,000 = $840,000 Quick ratio $1,866,000 = $840,000 Accounts receivable turnover $8,270,000 = [($714,000 + $740,000) = 2] Number of days' sales in receivables [($714,000 + $ 740,000) = 2] - $8,270,000 -365) Inventory turnover $4,100,000 = [($1,072,000 + $1,100,000 - 2 Number of days' sales in inventory [($1,072,000 + $1,100,000) = 2] = ($4,100,000 = 365) Ratio of fixed assets to long-term liabilities $2,690,000 = $1,690,000 Ratio of liabilities to stockholders' equity $2,530,000 = $4,079,000 Times interest earned ($983,100 + $127,000) = $127,000 Profitability Measures Computations Asset turnover $8,270,000 = [($5,785,000 + $5,595,000) = 2] Return on total assets ($796,380 + $127,000) = [($6,609,000 + $6,419,000) = 2] Return on stockholders' equity $8,270,000 = [($5,785,000 + $5,595,000) = 21 Return on common stockholders' equity ($796,380 - $65,000) = [($3,591,500 + $3,447,840) = 21 Earnings per share on common stock ($796,380 - $65,000) - 250,000 shares Price-earnings ratio $35 - $3.05 Dividends per share $175,000 = 250,000 shares Dividend yield $0.70 $35 Comparative Income Statement Use the following comparative income statement form to enter amounts you identify from the computations on the Liquidity and Solvency Measures part and on the Profitability Measures part. Compute any missing amounts and complete the horizontal analysis columns. Enter percentages as decimal amounts, rounded to one decimal place. When rounding, look only at the figure to the right of one decimal place. If 5, round up. For example, for 32.048% enter 32.0%. For 32.058% enter 32.1%. Comparative Income Statement For the Years Ended December 31, 2046 and 2045 Increase/(Decrease) 20Y6 2015 Amount Percentage Sales $ 8,270,000 $7,277,000 $ 993,000 13.6 % Cost of goods sold 4,100,000 (3,444,000) % Gross profit $ 12,370,000 $3,833,000 $ % Selling expenses $ $(1,455,400) $ % Administrative expenses (1,240,500) (1,104,500) % Total operating expenses $ $(2,559,900) $ % Operating income $1,273,100 $ % Other expense (interest) (120,600) % Income before income tax expense $ $1,152,500 $ % Income tax expense (180,720) % Net income $971,780 % Final Questions Your accountant friend reveals that the company whose information you have been working on is actually a company he is thinking of investing in. What advice and insight do you have for your friend? Using only the information from your horizontal analysis of the comparative income statement, complete the following sentences. has increased. However, has also has decreased significantly from 2015 to 2046, even though which slowed the increase in . In addition, has increased at a faster rate. The company appears Based on these observations, do you recommend that your friend invest in this company's stock

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Economics Of Accounting Information In Markets

Authors: Peter Ove Christensen, Gerald Feltham

2nd Edition

1402072295, 9781402072291

More Books

Students also viewed these Accounting questions

Question

c. What are the job responsibilities?

Answered: 1 week ago

Question

Describe the team dynamics at Facebook.

Answered: 1 week ago