Chapter 13: Q8DQ (page 614)
What does a relatively high accounts receivable turnover indicate about a company’s short-term liquidity?
High account receivable turnover ratio shows that collection process of company is quick and good. But it also indicates that credit terms are not favourable for creditors.
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Refer to Samsung’s financial statements in Appendix A. Compute its debt ratio as of December 31, 2015, and December 31, 2014.
Why is working capital given special attention in the process of analyzing balance sheets?
Refer to Simon Company’s financial information in Exercises 13-6 and 13-8. Evaluate the company’s efficiency and profitability by computing the following for 2017 and 2016:
(1) profit margin ratio—percent rounded to one decimal,
(2) total asset turnover—rounded to one decimal, and
(3) return on total assets— percent rounded to one decimal. Comment on these ratio results.
Answer
S.no | Ratios | 2017 | 2016 |
1 | Profit margin ratio | 4.6% | 5.5% |
2 | Total asset turnover ratio | 1.4 times | 1.3 times |
3 | Return on total assets | 6.4% | 7.5% |
Compute trend percents for the following accounts, using 2013 as the base year (round the percents to whole numbers). State whether the situation as revealed by the trends appears to be favorable or unfavorable for each account.
2017 | 2016 | 2015 | 2014 | 2013 | |
Sales | \(282,880 | \)270,800 | \(252,600 | \)234,560 | $150,000 |
Cost of goods sold | 128,200 | 122,080 | 115,280 | 106,440 | 67,000 |
Accounts receivable | 18,100 | 17,300 | 16,400 | 15,200 | 9,000 |
Question: Which items are usually assigned a 100% value on (a) a common-size balance sheet and (b) a common-size income statement?
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