Chapter 15: Q6RQ (page 835)
Describe a common-size statement and how it might be helpful in evaluating a company.
The common-sized statement refers to the preparation of financial statements that indicates different items as the percentage of a common base figure.
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Evaluating current ratio
Requirements
1. Compute Accel’s Companies’ current ratio at May 31, 2018 and 2017.
2. Did Accel’s Companies’ current ratio improve, deteriorate, or hold steady during 2018?
Explaining financial statements
Caleb King is interested in investing in Orange Corporation. What types of tools should Caleb use to evaluate the company?
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.
What are some common red flags in financial statement analysis?
Consider the data for Klein Department Stores presented in Problem P15-24A.
Requirements
1.Prepare a common-size income statement and balance sheet for Klein. The first column of each statement should present Klein’s common-size statement, and the second column, the industry averages.
2.For the profitability analysis, compute Klein’s
3.For the analysis of financial position, compute Klein’s
Assume the current ratio industry average is 1.47, and the debt-to-equity industry average is 1.83. Is Klein’s financial position better or worse than the industry averages?
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