Chapter 13: Q15DQ (page 614)
Refer to Google’s financial statements in Appendix A to compute its equity ratio as of December 31, 2015, and December 31, 2014.
2015:0.82
2014:0.80
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Selected comparative financial statements of Tripoly Company follow.
TRIPOLY COMPANY
Comparative Income Statements
For Years Ended December 31, 2017–2011
\( thousands 2017 2016 2015 2014 2013 2012 2011
Sales . . . . . . . . . . . . . . . . . . . . . . . \)560 \(610 \)630 \(680 \)740 \(770 \)860
Cost of goods sold . . . . . . . . . . . . 276 290 294 314 340 350 380
Gross profit . . . . . . . . . . . . . . . . . . 284 320 336 366 400 420 480
Operating expenses . . . . . . . . . . . 84 104 112 126 140 144 150
Net income . . . . . . . . . . . . . . . . . . \(200 \)216 \(224 \)240 \(260 \)276 \(330
TRIPOLY COMPANY
Comparative Balance Sheets
December 31, 2017–2011
\) thousands 2017 2016 2015 2014 2013 2012 2011
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . \( 44 \) 46 \( 52 \) 54 \( 60 \) 62 \( 68
Accounts receivable, net . . . . . . . . . . . . 130 136 140 144 150 154 160
Merchandise inventory . . . . . . . . . . . . . . 166 172 178 180 186 190 208
Other current assets . . . . . . . . . . . . . . . . 34 34 36 38 38 40 40
Long-term investments . . . . . . . . . . . . . 36 30 26 110 110 110 110
Plant assets, net . . . . . . . . . . . . . . . . . . . 510 514 520 412 420 428 454
Total assets . . . . . . . . . . . . . . . . . . . . . . . \)920 \(932 \)952 \(938 \)964 \(984 \)1,040
Liabilities and Equity Current liabilities . . . . . . . . . . . . . . . . . . . \(148 \)156 \(186 \)190 \(210 \)260 \( 280
Long-term liabilities . . . . . . . . . . . . . . . . 92 120 142 148 194 214 260
Common stock . . . . . . . . . . . . . . . . . . . . 160 160 160 160 160 160 160
Other paid-in capital . . . . . . . . . . . . . . . . 70 70 70 70 70 70 70
Retained earnings . . . . . . . . . . . . . . . . . 450 426 394 370 330 280 270
Total liabilities and equity . . . . . . . . . . . . \)920 \(932 \)952 \(938 \)964 \(984 \)1,040
Required
1. Compute trend percents for all components of both statements using 2011 as the base year. (Round percents to one decimal.)
Use the following selected data from Business Solutions’s income statement for the three months ended March 31, 2018, and from its March 31, 2018, balance sheet to complete the requirements below: computer services revenue, \(25,307; net sales (of goods), \)18,693; total sales and revenue, \(44,000; cost of goods sold, \)14,052; net income, \(18,833; quick assets, \)90,924; current assets, \(95,568; total assets, \)120,268; current liabilities, \(875; total liabilities, \)875; and total equity, $119,393.
Required
1. Compute the gross margin ratio (both with and without services revenue) and net profit margin ratio (round the percent to one decimal).
2. Compute the current ratio and acid-test ratio (round to one decimal).
3. Compute the debt ratio and equity ratio (round the percent to one decimal).
4. What percent of its assets are current? What percent are long-term? (Round the percent to one decimal.)
Assume that Carla Harris of Morgan Stanley (MorganStanley.com) has impressed you with the company’s success and its commitment to ethical behavior. You learn of a staff opening at Morgan Stanley and decide to apply for it. Your resume is successfully screened from the thousands received and you advance to the interview process. You learn that the interview consists of analyzing the following financial facts and answering analysis questions below. (The data are taken from a small merchandiser in outdoor recreational equipment.)
2017 | 2016 | 2015 | |
Sales trend percents | 137.0% | 125.0% | 100.0% |
Selling expenses to sales | 9.8% | 13.7% | 15.3% |
Sales to plant assets ratio | 3.5 to 1 | 3.3 to 1 | 3.0 to 1 |
Current ratio | 2.6 to 1 | 2.4 to 1 | 2.1 to 1 |
Acid test ratio | 0.8 to 1 | 1.1 to 1 | 1.2 to 1 |
Merchandise inventory turnover | 7.5 times | 8.7 times | 9.9 times |
Accounts receivable turnover | 6.7 times | 7.4 times | 8.2 times |
Total asset turnover | 2.6 times | 2.6 times | 3.0 times |
Return on total assets | 8.8% | 9.4% | 11.1% |
Return on equity | 9.75% | 11.50% | 12.25% |
Profit margin ratio | 3.3% | 3.5% | 3.7% |
Required
Use these data to answer each of the following questions with explanations.
1. Is it becoming easier for the company to meet its current liabilities on time and to take advantage of any available cash discounts? Explain.
2. Is the company collecting its accounts receivable more rapidly? Explain.
3. Is the company’s investment in accounts receivable decreasing? Explain.
4. Is the company’s investment in plant assets increasing? Explain.
5. Is the owner’s investment becoming more profitable? Explain.
6. Did the dollar amount of selling expenses decrease during the three-year period? Explain.
Why is working capital given special attention in the process of analyzing balance sheets?
Plum Corporation began the month of May with \(700,000 of current assets, a current ratio of 2.50:1, and an acid-test ratio of 1.10:1. During the month, it completed the following transactions (the company uses a perpetual inventory system).
May 2 Purchased \)50,000 of merchandise inventory on credit.
8 Sold merchandise inventory that cost \(55,000 for \)110,000 cash.
10 Collected \(20,000 cash on an account receivable.
15 Paid \)22,000 cash to settle an account payable.
17 Wrote off a \(5,000 bad debt against the Allowance for Doubtful Accounts account.
22 Declared a \)1 per share cash dividend on its 50,000 shares of outstanding common stock.
26 Paid the dividend declared on May 22.
27 Borrowed \(100,000 cash by giving the bank a 30-day, 10% note.
28 Borrowed \)80,000 cash by signing a long-term secured note.
29 Used the $180,000 cash proceeds from the notes to buy new machinery.
Required Prepare a table, similar to the following, showing Plum’s (1) current ratio,
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