Question Illustration 2-9 Financial ratio classifications

29 Jun Question Illustration 2-9 Financial ratio classifications

Question
Illustration 2-9

Financial ratio classifications

A single ratio by itself is not very meaningful. Accordingly, in this and the following chapters, we will use various comparisons to shed light on company performance:

1. Intracompany comparisons covering two years for the same company.

2. Industry-average comparisons based on average ratios for particular industries.

3. Intercompany comparisons based on comparisons with a competitor in the same industry

Question 1

Using these data from the comparative balance sheet of Rosalez Company, perform horizontal analysis. (If amount and percentage are a decrease show the numbers as negative, e.g. -55,000, -20% or (55,000), (20%). Round percentages to 0 decimal places, e.g. 12%.)

Increase or (Decrease)

Dec. 31, 2012 Dec. 31, 2011 Amount Percentage

Accounts receivable $ 545,500 $ 393,400 $

%

Inventory $ 820,400 $ 604,600 $

%

Total assets $3,146,500 $2,742,100 $

%

Question 2

Using these data from the comparative balance sheet of Rosalez Company, perform vertical analysis. (Round percentages to 1 decimal place, e.g. 12.5%.)

Dec. 31, 2012 Dec. 31, 2011

Amount Percentage Amount Percentage

Accounts receivable $ 543,900

% $ 417,700

%

Inventory $ 821,700

% $ 617,000

%

Total assets $3,175,700

% $2,787,300

%

Question 3

Vertical analysis (common-size) percentages for Vallejo Company’s sales, cost of goods sold, and expenses are listed here.

Vertical Analysis 2012 2011 2010

Sales 100 % 100 % 100 %

Cost of goods sold 60.8 63.8 66.4

Expenses 24.7 27.8 28.8

Did Vallejo’s net income as a percent of sales increase, decrease, or remain unchanged over the 3-year period? Provide numerical support for your answer.

Question 4

Horizontal analysis (trend analysis) percentages for Spartan Company’s sales, cost of goods sold, and expenses are listed here.

Horizontal Analysis 2012 2011 2010

Sales 96.2 % 104.8 % 100.0 %

Cost of goods sold 101.0 98.0 100.0

Expenses 105.6 95.4 100.0

Explain whether Spartan’s net income increased, decreased, or remained unchanged over the 3-year period.

Question 5

These selected condensed data are taken from recent balance sheets of Bob Evans Farms (in thousands).

2009 2008

Cash $ 13,606 $ 7,669

Accounts receivable 23,045 19,951

Inventories 31,087 31,345

Other current assets 12,522 11,909

Total current assets $ 80,260 $ 70,874

Total current liabilities $245,805 $326,203

(a)

Compute the current ratio for each year. (Round answers to 2 decimal places, e.g. .12 : 1.)

2009 2008

Current ratio:

:1

:1

Question 6

Staples, Inc. is one of the largest suppliers of office products in the United States. It had net income of $738.7 million and sales of $24,275.5 million in 2009. Its total assets were $13,073.1 million at the beginning of the year and $13,717.3 million at the end of the year. What is Staples, Inc.’s asset turnover ratio and profit margin ratio? (Round answers to 2 decimal places, e.g. 1.25 or 2.05%.)

Asset turnover ratio

times

Profit margin ratio