Chapter 15: Q4RQ (page 835)
Question: What is trend analysis, and how does it differ from horizontal analysis?
Answer
Trend analysis is done by the companies to see the directions in which their business is going.
Both the analysis, i.e., trend and horizontal are almost similar.
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The financial statements of Valerie’s Natural Foods include the following items:
Compute the following ratios for the current year:
Current ratio
Cash ratio
Acid-test ratio
Inventory turnover
Day’s sales in inventory
Day’s sales in receivables
Gross profit percentage
Big Beautiful Photo Shop has asked you to determine whether the company’s ability to pay current liabilities and total liabilities improved or deteriorated during 2018. To answer this question, you gather the following data:
2018 | 2017 | |
Cash | \(58,000 | \)47,000 |
Short-term Investments | 34,000 | 0 |
Net Accounts Receivable | 140,000 | 124,000 |
Merchandise Inventory | 217,000 | 272,000 |
Total Assets | 530,000 | 565,000 |
Total Current Liabilities | 288,000 | 205,000 |
Long-term Notes Payable | 40,000 | 50,000 |
Income from Operations | 165,000 | 158,000 |
Interest Expense | 55,000 | 41,000 |
Compute the following ratios for 2018 and 2017, and evaluate the company’s ability to pay its current liabilities and total liabilities:
a. Current ratio
b. Cash ratio
c. Acid-test ratio
d. Debt ratio
e. Debt to equity ratio
The following data are adapted from the financial statements of Bridget’s Shops, Inc.:
Total Current Assets $ 1,216,000
Accumulated Depreciation 2,000,000
Total Liabilities 1,540,000
Preferred Stock 0
Debt Ratio 55%
Current Ratio 1.60
Prepare Bridget’s condensed balance sheet as of December 31, 2018.
Describe a common-size statement and how it might be helpful in evaluating a company.
Preparing common-size statements, analysis of profitability and financial position, comparison with the industry, and using ratios to evaluate a company
Consider the data for Randall Department Stores presented in Problem P15-31B.
Requirements
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