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Week Five Exercise AssignmentFinancial RatiosLiquidity ratios. Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:EdisonStaggThorntonCash$4,000$2,500$1,000Short-term investments3,0002,5002,000Accounts receivable2,0002,5003,000Inventory1,0002,5004,000Prepaid expenses800800800Accounts payable200200200Notes payable: short-term3,1003,1003,100Accrued payables300300300Long-term liabilities3,8003,8003,800Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most liquid? Why?Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc:20X520X4Net credit sales$832,000$760,000Cost of goods sold440,000350,000Cash, Dec. 31125,000110,000Average Accounts receivable180,000140,000Average Inventory70,00050,000Accounts payable, Dec. 31115,000108,000Compute the accounts receivable and inventory turnover ratios for 20X5. Alaska rounds all calculations to two decimal places.Profitability ratios, trading on the equity. Digital Relay has both preferred and common stock outstanding. The company reported the following information for 20X7:Net sales$1,500,000Interest expense$120,000Income tax expense$80,000Preferred dividends$25,000Net income$130,000Average assets$1,100,000Average common stockholders' equity$400,000Compute the 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.Horizontal analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow. 20X2 20X1Current 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. Vertical analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow. 20X2 20X1Current 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 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 COMPANYComparative Balance SheetsDecember 31, 20X2 and 20X1 ($000 Omitted)20X2 20X1Assets 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 LONE PINE COMPANYStatement of Income and Retained EarningsFor the Year Ending December 31,20X2 ($000 Omitted)Net Sales* $36,000Less: Cost of Goods Sold $20,000Selling Expense 6,000Administrative Expense 4,000Interest Expense 400Income Tax Expense 2,00032,400 Net Income $ 3,600Retained Earnings, Jan. 1 900$ 4,500Cash Dividends Declared and Paid 3,100Retained Earnings, Dec. 31 $ 1,400*All sales are on account. Instructions Compute the following items for Lone Pine Company for 20X2, rounding all calculations to two decimal places when necessary: a. Quick ratio b. Current ratio c. Inventory-turnover ratio d. Accounts-receivable-turnover ratio e. Return-on-assets ratio f. Net-profit-margin ratio g. Return-on-common-stockholders’ equity h. Debt-to-total assets i. Number of times that interest is earned
acc205 ashford university week 5

acc205 ashford university week 5

Question # 00001460 Posted By: neil2103 Updated on: 09/21/2013 06:44 AM Due on: 09/18/2013
Subject Accounting Topic Accounting Tutorials:
Question
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Ashford 6: - Week 5

Discussions
To participate in the following discussions, go to this week's Discussion link in the left navigation.

  1. Ratios

    Ratios provide the users of financial statements with a great deal of information about the entity. Do ratios tell the whole story? How could liquidity ratios be used by investors to determine whether or not to invest in a company?

    Guided Response:
    Let at least two of your peers know how debt service ratios can be used by a lender in determining whether or not to lend money to a company.
  2. Profit Margin

Year Ending December 2012

Year Ending December 2011

Year Ending December 2010

Revenues

40,000

35,000

33,000

Operating Expenses

Salaries

15,000

10,000

9,000

Maintenance and Repairs

6,000

9,000

10,000

Rental Expense

2,500

2,500

2,500

Depreciation

2,000

2,000

2,000

Fuel

4,000

3,500

2,500

Total Operating Expenses

29,500

27,000

26,000

Operating Income

10,500

8,000

7,000

Sales and Administrative Expenses

6,000

4,000

3,000

Interest Expense

2,500

2,000

1,000

Net Income

2,000

2,000

3,000

Above is a comparative income statement for Cecil, Inc. for the years 2010, 2011, and 2012. Calculate the profit margin for each of these years. Comment on the profit margin trend.

Guided Response:
Let at least two of your peers posts know what you changes you would recommend to improve the net margin of the company.


Exercise Assignment
To complete the following assignment, go to this week's Assignment link in the left navigation.

Financial Ratios

Please complete each of the exercises below in a word document. Save the document, and submit to in week using the Assignment Submission button.

Week Five Exercise Assignment

Carefully review the Grading Rubric for the criteria that will be used to evaluate your assignment.

Final Paper
To complete the following final paper, go to this week's Final Paper link in the left navigation.

Final Paper

Focus of the Final Paper

Write a five-to seven-page financial statement analysis of a public company, and formatted according to APA style as outlined in the Ashford Writing Center. In this analysis you will discuss the financial health of this company with the ultimate goal of making a recommendation to other investors. Your paper should consist of the following sections: introduction, company overview, horizontal analysis, ratio analysis, final recommendation, and conclusions. Your paper needs to include a minimum of two scholarly resources in addition to the textbook as references.

Here is a breakdown of the sections within the body of the assignment:

Company Overview
Provide a brief overview of your company (one to two paragraphs at most). What industry is it in? What are its main products or services? Who are its competitors?

Horizontal Analysis of Income Statement and Balance Sheet
Prepare a three-year horizontal analysis of the income statement and balance sheet of your selected company. Discuss the importance and meaning of horizontal analysis. Discuss both the positive and negative trends presented in your company.

Ratio Analysis
Calculate the current ratio, quick ratio, cash to current liabilities ratio, over a two-year period. Discuss and interpret the ratios that you calculated. Discuss potential liquidity issues based on your calculations of the current and quick ratios. Are there any factors that could be erroneously influencing the results of the ratios? Discuss liquidity issues of competitive companies within the same industry.

Recommendation
Based on your analysis would you recommend an individual invest in this company? What strengths do you see? What risks do you see? It is perfectly acceptable to state that you would recommend avoiding this company as long as you provide support for your position.

Writing the Final Paper

1. Must be five to seven double-spaced pages in length, and formatted according to APA style as outlined in the Ashford Writing Center.
2. Must include a title page with the following:

a. Title of paper
b. Student’s name
c. Course name and number
d. Instructor’s name
e. Date submitted

3. Must begin with an introductory paragraph that has a succinct thesis statement.
4. Must address the topic of the paper with critical thought.
5. Must end with a conclusion that reaffirms your thesis.
6. Must document all sources in APA style, as outlined in the Ashford Writing Center.
7. Must include a separate reference page, formatted according to APA style as outlined in the Ashford Writing Center.

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