Chapter 15: Q13RQ (page 835)
What are some common red flags in financial statement analysis?
Red Flags in Financial Analysis are as follows- Sales trending down from the past years, consistently higher liabilities than Assets, etc.
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Data for Oxford State Bank follow:
2018 | 2017 | |
Net Income | \(71,900 | \)64,300 |
Dividends—Common | 22,000 | 22,000 |
Dividends—Preferred | 16,800 | 16,800 |
Total Stockholders’ Equity at Year-End (includes 95,000 shares of common stock) | 770,000 | 610,000 |
Net Income | \( 71,900 | \) 64,300 |
Market Price per Share of Common Stock | \( 16.50 | \) 10.00 |
Evaluate the common stock of Oxford State Bank as an investment. Specifically,
use the three stock ratios to determine whether the common stock has increased or decreased in attractiveness during the past year. Round to two decimal places.
Briefly describe the ratios that can be used to evaluate a company’s ability to paycurrent liabilities.
Briefly describe the ratios that can be used to evaluate a company’s ability to pay long-term debt.
Determining the effects of business transactions on selected ratios Financial statement data of Style Traveler Magazine include the following items:
Cash | \( 23,000 |
Accounts Receivable, Net | 81,000 |
Merchandise Inventory | 185,000 |
Total Assets | 635,000 |
Accounts Payable | 99,000 |
Accrued Liabilities | 37,000 |
Short-term Notes Payable | 51,000 |
Long-term Liabilities | 224,000 |
Net Income | 68,000 |
Common Shares Outstanding | 20,000 shares |
Requirements
Current Ratio Debt Ratio Earnings per Share |
2.Compute the three ratios after evaluating the effect of each transaction that follows. Consider each transaction separately
Net sales revenue, net income, and common stockholders’ equity for Eyesight Mission Corporation, a manufacturer of contact lenses, follow for a four-year period.
2019 | 2018 | 2017 | 2016 | |
Net Sales Revenue | \(766000 | \)708000 | \(644000 | \)664000 |
Net Income | 60000 | 38000 | 36000 | 44000 |
Ending Common Stockholder’s Equity | 368000 | 352000 | 326000 | 296000 |
Requirements
1.Compute trend analyses for each item for 2017–2019. Use 2016 as the base year, and round to the nearest whole percent.
2.Compute the rate of return on common stockholders’ equity for 2017–2019, rounding to three decimal places.
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