Academic help online – Cheap Research Essays

Liquidity ratios. Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:

Edison
Stagg
Thornton
Cash
$4,000
$2,500
$1,000

Short-term investments
3,000
2,500
2,000

Accounts receivable
2,000
2,500
3,000

Inventory
1,000
2,500
4,000

Prepaid expenses
800
800
800

Accounts payable
200
200
200

Notes payable: short-term
3,100
3,100
3,100

Accrued payables
300
300
300

Long-term liabilities
3,800
3,800
3,800

Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most liquid? Why?

2. Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc:

19X5
19X4
Net credit sales
$832,000
$760,000

Cost of goods sold
440,000
350,000

Cash, Dec. 31
125,000
110,000

Average Accounts receivable
180,000
140,000

Average Inventory
70,000
50,000

Accounts payable, Dec. 31
115,000
108,000

Compute the accounts receivable and inventory turnover ratios for 19X5. Alaska rounds all calculations to two decimal places.

3. Profitability ratios, trading on the equity. Digital Relay has both preferred and common stock outstanding. The company reported the following information for 19X7:

Net sales
$1,500,000
Interest expense
120,000
Income tax expense
80,000
Preferred dividends
25,000
Net income
130,000
Average assets
1,100,000
Average common stockholders’ equity
400,000

Compute the gross profit margin ratio, the return on equity and the return on assets, rounding calculations to two decimal places.
Does the firm have positive or negative financial leverage? Briefly explain.

4. Horizontal analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow.

20X2
20X1
Current Assets
$ 76,000
$ 80,000
Property, Plant, and Equipment (net)
99,000
90,000
Intangibles
25,000
50,000
Current Liabilities
40,800
48,000
Long-Term Liabilities
143,000
160,000
Stockholders’ Equity
16,200
12,000
Net Sales
500,000
500,000
Cost of Goods Sold
332,500
350,000
Operating Expenses
93,500
85,000

Prepare a horizontal analysis for 20X1 and 20X2. Briefly comment on the results of your work.

5. Vertical analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow.

Prepare a vertical analysis for 20X1 and 20X2. Briefly comment on the results of your work.

6. Ratio computation. The financial statements of the Lone Pine Company follow.

LONE PINE COMPANY
Comparative Balance Sheets
December 31, 20X2 and 20X1 ($000 Omitted)
20X2
20X1
Assets
Current Assets
Cash and Short-Term Investments
$ 400
$ 600
Accounts Receivable (net)
3,000
2,400
Inventories
2,000
2,200
Total Current Assets
$5,400
$5,200
Property, Plant, and Equipment
Land
$1,700
$ 600
Buildings and Equipment (net)
1,500
1,000
Total Property, Plant, and Equipment
$3,200
$1,600
Total Assets
$8,600
$6,800
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts Payable
$1,800
$1,700
Notes Payable
1,100
1,900
Total Current Liabilities
$2,900
$3,600
Long-Term Liabilities
Bonds Payable
4,100
2,100
Total Liabilities
$7,000
$5,700
Stockholders’ Equity
Common Stock
$ 200
$ 200
Retained Earnings
1,400
900
Total Stockholders’ Equity
$1,600
$1,100
Total Liabilities and Stockholders’ Equity
$8,600
$6,800