Reference no: EM131139645
Financial Statement Analysis
I. Large Land Photo Shop has asked you to determine whether the company's ability to pay current liabilities and total liabilities improved or deteriorated during 2012. To answer this question, you gather the following data:
|
|
2012
|
2011
|
|
Cash
|
$58,000
|
$57,000
|
|
Short-term investments
|
31,000
|
|
|
Net receivables
|
110,000
|
132,000
|
|
Inventory
|
247,000
|
297,000
|
|
Total assets
|
585,000
|
535,000
|
|
Total current liabilities
|
255,000
|
222,000
|
|
Long-term note payable
|
46,000
|
48,000
|
|
Income from operations
|
180,000
|
153,000
|
|
Interest expense
|
52,000
|
39,000
|
1. Compute the following ratios for 2012 and 2011:
a. Current ratio
b. Acid-test ratio
c. Debt to equity ratio
II. Using ratios to evaluate a stock investment
Comparative financial statement data of Danfield, Inc., follow:
Danfield, Inc.
|
Danfield, Inc.
Comparative Income Statement
Years Ended December 31, 2012 and 2011
|
|
|
2012
|
2011
|
|
Net sales
|
$467,000
|
$428,000
|
|
Cost of goods sold
|
237,000
|
218,000
|
|
Gross profit
|
$230,000
|
$210,000
|
|
Operating expenses
|
136,000
|
134,000
|
|
Income from operations
|
$94,000
|
$76,000
|
|
Interest expense
|
9,000
|
10,000
|
|
Income before income tax
|
$85,000
|
$66,000
|
|
Income tax expense
|
24,000
|
27,000
|
|
Net income
|
$61,000
|
$39,000
|
|
Danfield, Inc.
Comparative Income Statement
Years Ended December 31, 2012 and 2011
|
|
|
2012
|
2011
|
2010*
|
|
Current assets:
|
|
|
|
|
Cash
|
$97,000
|
$95,000
|
|
|
Current receivables, net
|
112,000
|
118,000
|
$102,000
|
|
Inventories
|
145,000
|
163,000
|
203,000
|
|
Prepaid expenses
|
12,000
|
5,000
|
|
|
Total current assets
|
$366,000
|
$381,000
|
|
|
Property, plant, and equipment, net
|
211,000
|
179,000
|
|
|
Total assets
|
577,000
|
$560,000
|
598,000
|
|
Total current liabilities
|
$225,000
|
$246,000
|
|
|
Long-term liabilities
|
114,000
|
97,000
|
|
|
Total liabilities
|
$339,000
|
$343,000
|
|
|
Preferred stock, 3%
|
108,000
|
108,000
|
|
|
Common stockholders' equity, no par
|
130,000
|
109,000
|
|
|
Total liabilities and stockholders' equity
|
$577,000
|
$560,000
|
|
* Selected 2010 amounts
1. Market price of Danfield's common stock: $86.58 at December 31, 2012 and $46.54 at December 31, 2011.
2. Common shares outstanding: 12,000 during 2012 and 10,000 during 2011 and 2010.
3. All sales on credit.
Requirements
1. Compute the following ratios for 2012 and 2011:
a. Current ratio
b. Times-interest-earned ratio
c. Inventory turnover
d. Gross profit percentage
e. Debt to equity ratio
f. Rate of return on common stockholders' equity
g. Earnings per share of common stock
h. Price/earnings ratio
2. Decide (a) whether Danfield's ability to pay debts and sell inventory improved or deteriorated during 2012 and (b) whether the investment attractiveness of its common stock appears to have increased or decreased.
|
Explain how each medium enables e-commerce
: Analyze each behavior using the communication process. The analysis should include descriptions of the purpose, sender, receiver, message, environment, technology, noise, and feedback.
|
|
Elite charge lump-sum taxes to middle-class entrepreneur
: Now suppose that the elite can charge lump-sum taxes to middle-class entrepreneurs. Provide an example in which in the MPE, the elite would still prefer g = 0. Explain why the political equilibrium might involve the use of inefficient fiscal instr..
|
|
Does ethics support the law in this case
: Explain the similarities and differences in your two solutions to the same dilemma. State (and justify) whether you feel the two schools of ethics are worthy of use in "real life" dilemmas.
|
|
Construct a pro forma income statement and balance sheet
: Using the company's financial statements, construct a pro forma income statement and balance sheet for the company using the percentage-of-sales method.
|
|
Compute times-interest-earned ratio and inventory turnover
: Compute the Times-interest-earned ratio, Inventory turnover, Gross profit percentage, Debt to equity ratio, Rate of return on common stockholders' equity, Earnings per share of common stock and Price/earnings ratio.
|
|
Explain differences between intended and realized strategy
: Explain the differences between intended and realized strategy. Why is it so difficult to execute strategies just as they are originally planned? What can be done to minimize the gap between intended and realized strategies?
|
|
Traditional approach for identifying qualified applicants
: The traditional approach for identifying qualified applicants is often driven by old traditions like looking at resumes, degree, years of experience, and even looks. What other, more quantifiable measures might be used when hiring a new employee? Be ..
|
|
Distinguish between story goal and plot
: select a short story from the Gutenberg website and deconstruct how the author is weaving the tale from a plot standpoint. - Locate the story goal.
|
|
Global standardization strategy and localization strategy
: Based on your country of choice, develop scenarios where firms may invest in your country using the following strategies: Global standardization strategy Localization strategy Transnational strategy International strategy For each strategy, develop o..
|