Part A - Chapter 21 in your textbook contains examples that will be helpful for completing the exercises below. 1. Using Excel formulas, prepare a vertical analysis for 2017 for the balance sheet below (only use 2017). 2. Using Excel formulas, prepare a horizontal analysis for the balance sheet below (use 2016 & 2017 - also note the order of the columns 3. Compute the following ratios and show the answer to two digits past the decimal: (i) the current ratio, (ii) the acid-test ratio. Use Excel formulas in the cells indicated below in yellow for calculating your ratios. Formulas for this exercise are located on page 779 in your textbook or on the Table 21-1 tab in this Excel file. Current ratio: |Acid-test ratio: 4. Using Table 21-1. how would you interpret the current ratio result you computed above? 5. Using Table 21-1, how would you interpret the acid-test ratio result you computed above? Green's Landscaping Balance Sheet December 31, 2016 and 2017 2017 2016 Assets Assers Cash Accounts receivable Merchandise inventory Total current assets Farver Equipment Total assets $5,275 7,305 45,522 58,102 $4,507 5.118 48,722 58,347 20.173 78,275 25,942 84,289 Liabilities 17 // zvibes Accounts payable Wages payable Total current liabilities L2V27-em latvilites Mortgage note payable Total liabilities 3,809 2,432 6,241 4,476 1,973 6,449 36,454 42,695 45,899 52,348 Owner's Equity A. Green, capital Total liabilities and owner's equity 35,580 78,275 31,941 84,289 Part B - Chapter 21 in your textbook contains examples that will be helpful for completing the exercises below. 1. Using the information below, prepare a vertical analysis for the income statement for 2017. 2. Using the information below, prepare a horizontal analysis of the income statement from 2017. 3. In which areas, if any, has the company seen increases since 2016? 4. In which areas, if any, has the company seen decreases since 2016? 5. Compute the following ratio and show the answer to two digits past the decimal. Use an Excel formula in the cell indicated below in yellow for calculating your ratio. Operating ratio: 6. Using table 21-1, how would you interpret this ratio? Artie's Painting Income Statement For the Years Ending December 31, 2016 and 2017 O Net sales Cost of goods sold Gross profit Operating expenses Net income 2017 $24,789 15,323 9,466 3,873 5,593 2016 $23,642 14,239 9,403 3,702 5,701 Table 21-1 Financial Ratio Analysis Ratio Value Less Than Value = 1 Value More Than 1 Current ratio current assets current liabilities Debts greater than Debts and assets assets; potentially are equal major problems Assets greater than debts; current ratio of 2 is desirable Acid-test ratio quick current assets current liabilities Cash flow could be a problem Business is in satisfactory condition Business is in good financial condition Operating ratio COGS +operating expenses net sales Desirable Marginal Undesirable Undesirable Gross profit margin ratio = gross profit from sales 0.25 to 0.40 is net sales industry average Uncommon except for businesses with low turnover and high investment Asset turnover ratio net sales average total assets Uncommon Uncommon 0.40 to 1.0 is industry average Debt ratio total liabilities total assets Debt ratio is too high 0.05 to 0.75 is industry average Debt ratio is dangerously high Cleaves, C., Hobbs, M., & Noble, J. (2017). Business Math (11th ed.). New York City, NY: Pearson Education, p.779