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Chapter 15: 8RQ (page 835)
Briefly describe the ratios that can be used to evaluate a company鈥檚 ability to paycurrent liabilities.
Working capital,
Current ratio,
Quick ratio
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What is benchmarking, and what are the two main types of benchmarks in financialstatement analysis?
Measuring profitability
Requirements
1. Compute the profit margin ratio for Accel鈥檚 Companies for 2018.
2. Compute the rate of return on total assets for 2018.
3. Compute the asset turnover ratio for 2018.
4. Compute the rate of return on common stockholders鈥� equity for 2018.
5. Are these rates of return strong or weak? Explain your reasoning.
Computing EPS and P/E ratio
Requirements
1. Compute earnings per share (EPS) for 2018 for Accel鈥檚. Round to the nearest cent.
2. Compute Accel鈥檚 Companies鈥� price/earnings ratio for 2018. The market price per
share of Accel鈥檚 stock is $12.50.
3. What do these results mean when evaluating Accel鈥檚 Companies鈥� profitability?
Moss Exports is having a bad year. Net income is only \(60,000. Also, two important overseas customers are falling behind in their payments to Moss, and Moss鈥檚 accounts receivable are ballooning. The company desperately needs a loan. The Moss Exports Board of Directors is considering ways to put the best face on the company鈥檚 financial statements. Moss鈥檚 bank closely examines cash flow from operating activities. Daniel Peavey, Moss鈥檚 controller, suggests reclassifying the receivables from the slow-paying clients as long-term. He explains to the board that removing the \)80,000 increase in accounts receivable from current assets will increase net cash provided by operations. This approach may help Moss get the loan.
Requirements
1. Using only the amounts given, compute net cash provided by operations, both without and with the reclassification of the receivables. Which reporting makes Moss look better?
2. Under what condition would the reclassification of the receivables be ethical? Unethical?
Data for Connor, Inc. and Alto Corp. follow:
Connor Alto
Net Sales Revenue \( 13,000 \) 22,000
Cost of Goods Sold 7,917 15,730
Other Expenses 4,342 5,170
Net Income \( 741 \) 1,100
Requirements
1. Prepare common-size income statements.
2. Which company earns more net income?
3. Which company鈥檚 net income is a higher percentage of its net sales revenue?
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