Fortis ACC108 homework 4 and 5
Financial Statement Analysis Worksheet
Part 1. Identify Ratios
Identify the ratio that corresponds with the following descriptions. Enter your answers in the shaded boxes.
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Description |
Ratio |
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Measures a company’s ability to make and collect sales |
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Provides information on how well a company manages its inventory |
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Measures the return to each share of stocked owned by an investor |
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Shows the ability of a company to generate profits from sales |
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Measures a companys’ ability to generate profits from equity |
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Measures a company’s capital structure by showing the percentage of assets provided by creditors |
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Measures a company’s capital structure and financial leverage using liabilities and equity |
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Show the ability to pay current liabilities immediately by measuring the difference between quick assets and current liabilities |
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Measures the ability to pay interest out of current earnings |
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Measures the ability to pay current obligations by comparing current assets to current liabilities |
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Provides an indication of investor perceptions of the company by comparing net income to stock price |
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Measures a company’s ability to generate profits from its entire resource base |
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Part 2. Horizontal Analysis
Foothills Company’s income statements for 2012 and 2011 are shown below:
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Foothills Company Income Statements For the Years ending December 31 |
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2012 |
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2011 |
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Sales |
$ 825,000 |
$ 700,000 |
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Cost of goods sold |
390,000 |
350,000 |
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Gross profit |
$ 435,000 |
$ 350,000 |
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Operating expenses |
200,000 |
130,000 |
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Operating income |
$235,000 |
$220,000 |
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Interest expense |
80,000 |
50,000 |
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Income before taxes |
$ 155,000 |
$ 170,000 |
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Income tax expense |
59,000 |
64,000 |
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Net income |
$ 96,000 |
$ 106,000 |
a. Prepare a horizontal analysis of Foothill’s income statements, rounding the percentages to one decimal point. Enter your answers in the shaded boxes.
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$ Change |
% Change |
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Sales |
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Cost of goods sold |
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Gross profit |
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Operating expenses |
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Operating income |
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Interest expense |
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Income before taxes |
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Income tax expense |
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Net income |
b. Based on your calculations, write a brief interpretation of this analysis.
Part 3. Vertical Analysis
Blue Cloud Inc.’s income statements for 2012 and 2011 are shown below:
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Blue Cloud Inc. Income Statements For the Years ending December 31 |
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2012 |
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2011 |
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Sales |
$1,500,000 |
$1,900,000 |
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Cost of goods sold |
800,000 |
950,000 |
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Gross profit |
$ 700,000 |
$ 950,000 |
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Operating expenses |
330,000 |
420,000 |
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Operating income |
$370,000 |
$530,000 |
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Interest expense |
95,000 |
100,000 |
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Income before taxes |
$ 275,000 |
$ 430,000 |
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Income tax expense |
96,000 |
115,000 |
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Net income |
$ 179,000 |
$ 315,000 |
a. Prepare a vertical analysis of Blue Cloud’s income statements, rounding the percentages to one decimal point. Enter your answers in the shaded boxes.
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2012 |
% |
2011 |
% |
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Sales |
$1,500,000 |
$1,900,000 |
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Cost of goods sold |
800,000 |
950,000 |
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Gross profit |
700,000 |
950,000 |
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Operating expenses |
330,000 |
420,000 |
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Operating income |
370,000 |
530,000 |
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Interest expense |
95,000 |
100,000 |
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Income before taxes |
275,000 |
430,000 |
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Income tax expense |
96,000 |
115,000 |
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Net income |
$ 179,000 |
$ 315,000 |
b. Based on your calculations, write a brief interpretation of this analysis.
Part 4. Ratio Analysis
Blue Cloud Inc.’s 2012 Income Statement and Comparative Balance Sheet follow.
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Blue Cloud Inc. Income Statement For the Year ending December 31 |
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2012 |
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Sales |
$1,500,000 |
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Cost of goods sold |
800,000 |
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Gross profit |
$ 700,000 |
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Operating expenses |
330,000 |
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Operating income |
$370,000 |
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Interest expense |
95,000 |
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Income before taxes |
$ 275,000 |
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Income tax expense |
96,000 |
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Net income |
$ 179,000 |
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Comparative Balance Sheet |
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2012 |
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2011 |
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Cash |
$ 60,000 |
$ 75,000 |
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Accounts receivable |
190,000 |
230,000 |
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Inventory |
180,000 |
210,000 |
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Prepaid insurance |
70,000 |
100,000 |
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Total current assets |
$ 500,000 |
$ 615,000 |
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Property & equipment |
1,020,000 |
1,130,000 |
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Accumulated depreciation |
550,000 |
600,000 |
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Total property and equipment |
470,000 |
530,000 |
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Total assets |
$ 970,000 |
$1,145,000 |
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Accounts payable |
$ 65,000 |
$ 110,000 |
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Notes payable |
55,000 |
130,000 |
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Total current liabilities |
120,000 |
240,000 |
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Bonds payable |
120,000 |
60,000 |
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Total liabilities |
240,000 |
300,000 |
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Common stock |
620,000 |
685,000 |
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Retained earnings |
110,000 |
160,000 |
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Total stockholders’ equity |
730,000 |
845,000 |
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Total liability & stockholders’ equity |
$970,000 |
$1,145,000 |
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a. Use Blue Cloud’s 2012 Income Statement and Comparative Balance sheet to calculate the ratios below. Enter your answers in the shaded boxes under column a.
b. Note if the ratio is a Profitability, Liquidity, or Solvency Ratio. Enter your answers in the shaded boxes under column b.
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Ratio |
a. Calculation Answer |
b. Profitability, Liquidity, or Solvency ratio? |
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Profit margin |
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Debt to assets ratio |
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Current ratio |
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Quick ratio |
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Return on assets |
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Times interest earned |
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Inventory turnover ratio |
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Receivables turnover ratio |
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Debt to equity ratio |
c. Based on your calculations, write a brief interpretation of this analysis.
Statement of Cash Flows Worksheet
Part 1. Classify Cash Flows
Classify each of the transactions for Punchline Inc. below as a cash inflow or cash outflow from operating activities, investing activities or financing activities. Enter your answers in the table below. The first transaction has been completed for you.
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Transaction |
Inflow or Outflow? |
Operating, Investing, or Financing Activity? |
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Issues $200,000 of common stock for cash |
Inflow |
Financing |
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Purchased machinery for $35,000 |
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Recorded cash sales of $167,000 |
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Collected a $17,000 receivable from a customer |
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Paid dividends of $225,000 in cash |
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Paid a $25,000 account payable |
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Purchased $15,000 in stock from another company |
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Sold an investment that cost $15,000 for $15,000 |
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Issued bonds at face value for $27,000 |
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Purchases treasury stock for $40,000 |
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Paid $7,500 to renew an insurance policy |
Part 2. The Direct Method
Bragg Mechanical Inc. shows the following information at the end of the year:
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Sales |
$ 690,000 |
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Cost of good sold |
410,000 |
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Salaries expense |
90,000 |
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Insurance expense |
20,000 |
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Income tax expense |
22,000 |
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Increase in accounts receivable |
9,000 |
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Decrease in inventory |
8,000 |
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Increase in accounts payable |
14,000 |
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Increase in salaries payable |
13,000 |
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Decrease in taxes payable |
2,000 |
Calculate the cash flows from operating activities using the direct method and prepare the operating section of the statement of cash flows for Bragg Mechanical. Enter your answers in the shaded boxes below. A couple of boxes have been completed for you.
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Cash flows from operating activities |
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Cash receipts from customers |
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Less cash payments: |
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To suppliers |
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Net cash provided by operating activities |
Part 3. The Indirect Method
Cara Cara Packing Inc. reported the following information for 2012:
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Net income |
$ 1,500,000 |
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Increase in net current assets |
60,000 |
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Increase in net current liabilities |
65,000 |
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Gain on sale of investments |
9,000 |
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Depreciation expense |
130,000 |
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Loss on bond redemption |
10,000 |
Prepare the operating activities section of Cara Cara’s statement of cash flows using the direct method. Enter your answers in the shaded boxes. A couple of boxes have been completed for you.
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Cash flows from operating activities |
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Net income |
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Adjustments to reconcile net income to net cash |
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Depreciation expense |
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Net cash provided by operating activities |
Part 4. Investing Activities
Style Squared provided the following information on transactions that occurred during the year:
a. An old plant was purchased for $300,000 was sold for $93,000.
b. Style squared purchased $45,000 in stock from Avett Systems.
c. A new production plant was purchased for $550,000 cash.
d. Stock in Iver Inc. was sold for $23,000.
e. New equipment was purchased for $13,000.
Use this information to compute cash flows from investing activities. Enter your answers in the shaded boxes below. A couple of boxes have been completed for you.
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Cash flows from investing activities |
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Purchase of production plant |
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Net cash used in investing activities |
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Part 5. Financing Activities
Mosquito Music reported the following transactions for the year:
a. A cash dividend of $300,000 was paid.
b. A 60-day note payable was issued for $15,000 cash.
c. Mosquito purchased back $55,000 of its own common stock.
d. Bonds with a face value of $43,000 were issued at par.
Use this information to compute cash flows from financing activities for Mosquito Music. Enter your answers in the shaded boxes below. A couple of boxes have been completed for you.
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Cash flows from financing activities |
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Payment of dividend |
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Net cash used in financing activities |
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Solution: Fortis ACC108 homework 4 and 5