Chapter 13: 2DQ (page 614)
What is the difference between comparative financial statements and common-size comparative statements?
Common size statements show the financial items in percentage for single year while the comparative statements show the financial items in absolute numbers for multiple years.
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Common-size and trend percents for Rustynail Company’s sales, cost of goods sold, and expenses follow. Determine whether net income increased, decreased, or remained unchanged in this three-year period.
| Common-Size Percents | Trend Percents | |||||
| 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |
| Sales | 100.0% | 100.0% | 100.0% | 105.4% 1 | 104.2% | 100.0% |
| Cost of goods sold | 63.4 | 61.9 | 59.1 | 113.1 | 109.1 | 100.0 |
| Total expenses | 15.3 | 14.8 | 15.1 | 106.8 | 102.1 | 100.0 |
Why is working capital given special attention in the process of analyzing balance sheets?
Nintendo Company, Ltd., reports the following financial information as of, or for the year ended, March 31, 2015. Nintendo reports its financial statements in both Japanese yen and U.S. dollars as shown (amounts in millions).
Current assets . . . . . . . . . . . . . . ¥1,097,597 $ 9,110
Total assets . . . . . . . . . . . . . . . . 1,352,944 11,229
Current liabilities . . . . . . . . . . . . 144,232 1,197
Net sales . . . . . . . . . . . . . . . . . . 549,780 4,562
Net income . . . . . . . . . . . . . . . . 41,843 347
1. Compute Nintendo’s current ratio, net profit margin, and sales-to-total-assets ratio using the financial information reported in (a) yen and (b) dollars. Round amounts to two decimals.
Which items are usually assigned a 100% value on (a) a common-size balance sheet and (b) a common-size income statement?
Identify which of the following six metrics a through f best completes questions 1 through 3 below.
a. Days’ sales uncollectedd. Return on total assets
b. Accounts receivable turnover e. Total asset turnover
c. Working capitalf. Profit margin
1. Which two ratios are key components in measuring a company’s operating efficiency? Which ratio summarizes these two components?
2. What measure reflects the difference between current assets and current liabilities?
3. Which two short-term liquidity ratios measure how frequently a company collects its accounts?
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