Financial Statement Analysis

Chapter 15 Exercises

Horizontal Analysis

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In-Class Exercise: Exercise No.

Page E-15-15 931 Horizontal Analysis (Use the format, as reflected on the next slide, to complete the exercise)

Horizontal Analysis Exercise Page E15-15 931 Horizontal Analysis

Horizontal Analysis Exercise E15-15: Data for Mariner Designs, Inc. follow: 2015 2014 Net Sales Revenue……..…………….$431,000 $372,350 Expenses: Cost of Goods Sold.……………… 200,000 187,550 Selling and Admin. Expenses….. 99,000 91,050 Other Expenses…………………… 8,350 6,850 Total Expenses…………………….$307,350 $285,450 Net Income…………………………….$123,650 $ 86,900 Requirements: (1) Prepare a horizontal analysis of the comparative income statement. Round percentage changes to one decimal place.

(2) Why did 2015 net income increase by a higher percentage that net sales revenue?

Horizontal Analysis $431,000 - $372,350 = $58,650

Horizontal Analysis $58,650 ÷ $372,350 = 15.8%

Horizontal Analysis

Horizontal Analysis End of Exercise

Trend Analysis

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In-Class Exercise: Exercise No.

E15-16 Page 931 Trend Analysis (Use the format, as reflected on the next slide, to complete the exercise)

Trend Analysis 2012 is the base year.

Exercise Page E15-16 931 Trend Analysis

Trend Analysis Exercise E15-16: Magic Oaks Realty’s net revenue and net income for the following five-year period, using 2012 as the base year, follows: Requirements: (1) Compute trend analysis for net revenue and net income. Round to the nearest full percent.

(2) Which grew faster during the period, net revenue or net income?

Trend Analysis 2012 is the base year.

Divide all revenue items by $1,045,000

Trend Analysis 2012 is the base year.

$1,045,000 ÷ $1,045,000 = 100%

Trend Analysis 2012 is the base year.

$1,011,000 ÷ $1,045,000 = 97%

Trend Analysis 2012 is the base year.

Completed revenue trend analysis.

Trend Analysis 2012 is the base year.

Divide all income items by $83,000

Trend Analysis 2012 is the base year.

$83,000 ÷ $83,000 = 100%

Trend Analysis 2012 is the base year.

$72,000 ÷ $83,000 = 87%

Trend Analysis 2012 is the base year.

Completed income trend analysis.

Trend Analysis End of Exercise

Vertical Analysis

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In-Class Exercise: Exercise No.

E15-17 Page 932 Comparative Balance Sheet (Use the format, as reflected on the next slide, to complete the exercise)

Vertical Analysis Express each item as a percent of Total Assets for each year

Vertical Analysis $42,750 ÷ $285,000 = 15.0%

Vertical Analysis $59,000 ÷ $309,500 = 19.1%

Vertical Analysis

Vertical Analysis End of Exercise

Ratio Analysis

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In-Class Exercise: Exercise No.

E15-20 Page 933 Computing Key Ratios

Ratio Analysis Exercise E15-20: The financial statements of Victor’s Natural Foods include the following items: Current Year Preceding Year Balance Sheet: Cash………………………………… $ 15,000 $ 20,000 Short Term Investments.……….. 11,000 27,000 Accounts Receivable, net………. 54,000 73,000 Merchandise Inventory..………… 77,000 69,000 Prepaid Expenses………………... 15,000 9,000 Total Current Assets…………….. $172,000 $198,000 Total Current Liabilities.………… $133,000 $ 93,000 Income Statement: Net Credit Sales……………..…… $462,000 Cost of Goods Sold…………..…. 315,000 Compute the following ratios for the current year: (a) Current ratio (d) Inventory turnover (g) Days’ sales in receivables (b) Cash ratio (e) Days’ sales in inventory (h) Gross profit percentage (c) Acid-test ratio (f) Accounts receivable turnover ratio

Ratio Analysis Current Ratio Total Current Assets .

Total Current Liabilities This ratio measures the short-term debt-paying ability of the company.

Ratio Analysis Total Current Assets .

Total Current Liabilities This ratio measures the short-term debt-paying ability of the company.

Ratio Analysis Cash Ratio Cash + Cash Equivalents .

Total Current Liabilities This ratio h elps to determine a company’s ability to meet its short-term obligations.

Ratio Analysis Cash + Cash Equivalents .

Total Current Liabilities This ratio h elps to determine a company’s ability to meet its short-term obligations.

Ratio Analysis Acid-Test or Quick Ratio Quick Assets .

Total Current Liabilities This ratio measures whether a company can pay all its current liabilities if they came due immediately.

Ratio Analysis Quick Assets .

Total Current Liabilities Quick Assets = Cash + Short-Term Investments + Net Current Receivables

Ratio Analysis Inventory Turnover Cost of Goods Sold .

Average Mdse Inventory This ratio measures the number of times a company sells its average level of merchandise inventory during a year.

Ratio Analysis Cost of Goods Sold .

Average Mdse Inventory This ratio measures the number of times a company sells its average level of merchandise inventory during a year.

Ratio Analysis Days’ Sales in Inventory 365 .

Inventory Turnover This ratio measures the average number of days merchandise inventory is held by the company.

Ratio Analysis 365 .

Inventory Turnover This ratio measures the average number of days merchandise inventory is held by the company.

Ratio Analysis Accounts Receivable Turnover Ratio Net Credit Sales .

Average Net Accounts Receivable This ratio measures the number of times the company collects the average receivables balance in a year.

Ratio Analysis Net Credit Sales .

Average Net Accounts Receivable This ratio measures the number of times the company collects the average receivables balance in a year.

Ratio Analysis Days’ Sales in Receivables 365 .

Accounts Receivable Turnover This ratio indicates how many days it takes to collect the average level of receivables.

Ratio Analysis 365 .

Accounts Receivable Turnover This ratio indicates how many days it takes to collect the average level of receivables.

Ratio Analysis Gross Profit Percentage Gross Profit .

Net Sales Revenue Measures the profitability of each net sales dollar above the cost of goods sold.

Ratio Analysis 32 % Gross Profit .

Net Sales Revenue Measures the profitability of each net sales dollar above the cost of goods sold.

Ratio Analysis End of Exercise