Chapter 13: Q6DQ (page 614)
Why is working capital given special attention in the process of analyzing balance sheets?
Working capital is the relation between the current assets and current liabilities which are the major parts of the balance sheet.
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How does inventory turnover provide information about a company’s short-term liquidity?
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.)
What does a relatively high accounts receivable turnover indicate about a company’s short-term liquidity?
Key figures for Apple and Google follow.
\( million | Apple | |
Cash and equivalents | \)21,120 | $16,549 |
Accounts receivable, net | 16,849 | 11,556 |
Inventories | 2,349 | 0 |
Retained earnings | 92,284 | 90,892 |
Cost of sales | 140,089 | 28,164 |
Revenue | 233,715 | 74,989 |
Total assets | 290,479 | 147,461 |
Required
1. Compute common-size percents for each of the companies using the data provided. (Round percents to one decimal.)
2. Which company retains a higher portion of cumulative net income in the company?
3. Which company has a higher gross margin ratio on sales?
4. Which company holds a higher percent of its total assets as inventory?
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.)
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