Your SlideShare is downloading. ×
Ashford acc 205 week 5 financial ratios
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Ashford acc 205 week 5 financial ratios

79
views

Published on


0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
79
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
0
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. ASHFORD ACC 205 Week 5 FinancialRatios PLEASE DOWNLOAD HEREWeek Five Exercise AssignmentFinancial Ratios1. Liquidity ratios. Edison, Stagg, and Thornton have the following financialinformation at the close of business on July 10:EdisonStaggThorntonCash$4,000$2,500$1,000Short-term investments3,0002,5002,000Accounts receivable2,0002,5003,000Inventory1,0002,500
  • 2. 4,000Prepaid expenses800800800Accounts payable200200200Notes payable: short-term3,1003,1003,100Accrued payables300300300Long-term liabilities3,8003,8003,800Compute the current and quick ratios for each of the three companies. (Roundcalculations to two decimal places.) Which firm is the most liquid? Why? SupposeThornton is using FIFO for inventory valuation and Edison is using LIFO.Comment on the comparability of information between these two companies. If allshort-term notes payable are due on July 11 at 8 a.m., comment on each
  • 3. companys ability to settle its obligation in a timely manner. 2. Computation andevaluation of activity ratios. The following data relate to Alaska Products, Inc:19X519X4Net credit sales$832,000$760,000Cost of goods sold440,000350,000Cash, Dec. 31125,000110,000Accounts receivable, Dec. 31180,000140,000Inventory, Dec. 3170,00050,000Accounts payable, Dec. 31115,000108,000The company is planning to borrow $300,000 via a 90-day bank loan to covershort-term operating needs.Compute the accounts receivable and inventory turnover ratios for 19X5. Alaskarounds all calculations to two decimal places. Study the ratios from part (a) andcomment on the companys ability to repay a bank loan in 90 days. Suppose that
  • 4. Alaskas major line of business involves the processing and distribution of freshand frozen fish throughout the United States. Do you have any concerns aboutthe companys inventory turnover ratio? Briefly discuss. 3. Profitability ratios,trading on the equity. Digital Relay has both preferred and common stockoutstanding. The company reported the following information for 19X7:Net sales$1,500,000Interest expense120,000Income tax expense80,000Preferred dividends25,000Net income130,000Average assets1,100,000Average common stockholders equity400,000Compute the profit margin on sales and the rates of return on assets andcommon stockholders equity, rounding calculations to two decimal places. Doesthe firm have positive or negative financial leverage? Briefly explain. 4. Financialstatement construction via ratios. Incomplete financial statements of Lock Box,Inc., are presented below.LOCK BOX, INC.Income StatementFor the Year Ended December 31, 19X3Sales
  • 5. $?Cost of goods sold?Gross profit$15,000,000Operating expenses & interest?Income before tax$?Income taxes, 40%?Net income$?LOCK BOX, INC.Balance SheetDecember 31, 19X3AssetsCashAccountsreceivableInventoryProperty, plant, &. equipmentTotalassets$???
  • 6. 8,000,000$24,000,000Liabilities & Stockholders EquityAccounts payableNotes payable (short-term)Bonds payableCommon stockRetained earningsTotal liabilities & stockholders equity$?600,000 4,600,0002,000,000?$24,000,000Further information:Cost of goods sold is 60% of sales. All sales are on account. The companysbeginning inventory is $5 million; inventory turnover is 4. The debt to total assetsratio is 70%. The profit margin on sales is 6%. The firms accounts receivableturnover is 5. Receivables increased by $400,000 during the year.Instructions:Using the preceding data, complete the income statement and the balance sheet.