Chapter 15: Q6SE (page 837)
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?
Answer
Decreasing Current ratio Over a year
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Completing a comprehensive financial statement analysis
In its annual report, XYZ Athletic Supply, Inc. includes the following five-year financial summary:
XYZ ATHLETIC SUPPLY, INC. | ||||||
Five-Year Financial Summary (Partial; adapted) | ||||||
(Dollar amounts in thousands except per share data) | 2018 | 2017 | 2016 | 2015 | 2014 | 2016 |
Net sales revenue | \(275,000 | \)222,000 | \(199,000 | \)171,000 | 131,000 | |
Net Sales Revenue Increase | 24% | 12% | 16% | 31% | 17% | |
Domestic Comparative Store Sales Increase | 6% | 6% | 5% | 8% | 10% | |
Other Income—Net | 2,090 | 1,780 | 1,770 | 1,700 | 1,310 | |
Cost of Goods Sold | 208,725 | 169,386 | 154,822 | 134,235 | 103,883 | |
Selling and Administrative Expenses | 41,280 | 36,340 | 31,670 | 27,450 | 22,540 | |
Interest: | ||||||
Interest Expense | (1,070) | (1,370) | (1,330) | (1,100) | (800) | |
Interest Income | 140 | 155 | 150 | 230 | 140 | |
Income Tax Expense | 4,420 | 3,900 | 3,610 | 3,390 | 2,730 | |
Net Income | 21,735 | 12,939 | 9,488 | 6,755 | 2,497 | |
Per Share of Common Stock: | ||||||
Net Income | 1.10 | 0.80 | 0.70 | 0.50 | 0.28 | |
Dividends | 0.45 | 0.43 | 0.39 | 0.35 | 0.31 | |
Financial Position | ||||||
Current Assets, Excluding Merchandise Inventory | \(30,900 | \)27,200 | \(26,800 | \)24,400 | $21,800 | |
Merchandise Inventory | 24,700 | 22,400 | 21,600 | 19,300 | 17,000 | 16,800 |
Property, Plant, and Equipment, Net | 51,600 | 46,200 | 40,500 | 35,000 | 25,200 | |
Total Assets | 107,200 | 95,800 | 88,900 | 78,700 | 64,000 | |
Current Liabilities | 32,600 | 27,800 | 28,800 | 25,600 | 17,000 | |
Long-term Debt | 23,000 | 21,200 | 16,800 | 18,600 | 12,900 | |
Stockholders’ Equity | 51,600 | 46,800 | 43,300 | 35,500 | 34,100 | |
Financial Ratios | ||||||
Acid-Test Ratio | 0.9 | 1.0 | 0.9 | 1.0 | 1.3 | |
Rate of Return on Total Assets | 22.5% | 15.5% | 12.8% | 10.9% | 9.9% | |
Rate of Return on Common Stockholders’ Equity | 44.2% | 28.7% | 24.1% | 19.4% | 18.9% |
Requirements
Analyze the company’s financial summary for the fiscal years 2014–2018 to decide whether to invest in the common stock of XYZ. Include the following sections in your analysis.
1. Trend analysis for net sales revenue and net income (use 2014 as the base year).
2. Profitability analysis.
3. Evaluation of the ability to sell merchandise inventory.
4. Evaluation of the ability to pay debts.
5. Evaluation of dividends.
6. Should you invest in the common stock of XYZ Athletic Supply, Inc.? Fully explain your final decision
Question: What is horizontal analysis, and how is a percentage change computed?
Briefly describe the ratios that can be used to evaluate a company’s ability to pay long-term debt.
Computing inventory, gross profit, and receivables ratios
Requirements
1. Compute the inventory turnover, days’ sales in inventory, and gross profit
percentage for Accel’s Companies for 2018.
2. Compute days’ sales in receivables during 2018. Round intermediate calculations to
three decimal places. Assume all sales were on account.
3. What do these ratios say about Accel’s Companies’ ability to sell inventory and
collect receivables?
Grand Oaks Realty’s net revenue & net income for the following five-year period using 2015 as the base year, follow:
Requirement:
Compute a trend analysis for the net revenue & net income. Round to the nearest full percent.
Which grew faster during the period, net revenue or the net income?
What do you think about this solution?
We value your feedback to improve our textbook solutions.
