Appendix 6C-4 Answer-1
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APPENDIX 6C-4
6C-4 KCN Analysis of ratios
Answer The following are the observations on ratios which indicate red flags or unusual fluctuations that should be investigated and the reasons for the red flags. 1.
RETURN ON TOTAL ASSETS
—This ratio indicates the profitability of the company by effectively employing its assets. Across the board increases in Assets (excluding leasehold improvements and intangibles). The main drivers are:
Inventory-why the 11% increase in inventory? Are the items not selling?
Receivables-Why is there a 20% increase?
Cash-Why did it jump nearly 50%? Is it due to an increase in operating cash flow activity of financing activities (debt)? How will cash be used?
Net Income-Why did bottom line drop 75%?
In 2018, this ratio has declined to 1.7%, which is lower than the industry average of 9%. It has been observed that there was a considerable decline in this ratio in 2018. KCN is not in a position to derive profits from its assets which is much lower than the industry average. The difference is material because of the significant decrease in return on total assets to income. Reasons for this are: an increase in assets and a significant decrease in income.
2.
RETURN ON NET WORTH
Net income-Why did bottom line drop 75%?
Dividend Paid—This is a new account so why did they pay dividends this year?
It has been observed that there was a considerable decline in this ratio of about 23%. KCN is not able to effectively generate revenue from its capital. Could be due to and increase in net worth. The difference is material due to a significant decrease as well as the ratio being significantly below industry average. There has been a material decrease in net income. Net worth decreased due to the decrease in retained earnings, caused by the dividend paid out this year.
3.
RETURN ON NET SALES
Sales-Why the 4% decrease? This ratio indicates the profitability of KCN from its operating activities. In 2018, there was a further decline to from 1.0% to 0.2% which is lower than the industry average of 2.3%. Ratio is material due to the significant decrease which is driven by lower sales and lower net income. 4.
TOTAL LIABILITIES TO NET WORTH
Credit Line-Why the increased credit line 30%? What is the money being used
for?
This ratio indicates KCNs ability to meet its long term debt. The solvency position of KCN is healthy in 2018 at 3.5% which is slightly higher than the industry average of 2.9%.
5.
CURRENT RATIO
The short term solvency position of KCN in 2018 is much better. This is also better than the industry average of 1.3%.
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Related Questions
Questions:
1. Make a comparison for each company based on computed ratio.
2. What is your financial analysis on their overall performance?
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Company X is competing with company Y. These are their ratios:
x
y
Total Asset Trunover
.462
.361
Inventory Turnover
30.23
37.40
Accounts Receivable
n/a
n/a
Based on Asset Utilization/Management Efficiency, which company is doing better when compared to the other?
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what is the correct match to this terminlogy
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QUESTION 6
Utilizing the information from the previous question please match the following:
Liquidity ratios: (1) current ratio
Liquidity ratios: (2) quick ratio
Solvency ratios: (3) debt ratio
Solvency ratios: (4) times interest earned
Activity ratios: (5) inventory turnover…
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How to solve question
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Required:
(a) You are required to calculate the following ratios:(i) Gross profit margin(ii) Operating profit margin(iii) Expenses to sales(iv) Return on Capital Employed(v) Asset turnover(vi) Non-current asset turnover(vii) Current Ratio(viii) Quick Ratio(ix) Inventory days(x) Receivables days(xi) Payable days(xii) Interest cover
(b) In light of your calculations comment on the performance of the company over thelast two years.
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Need the answers in that formats thank you
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Compare the performance of Fly X to the Industry. For each ratio, comment on whether Fly X is positive or negative relative to the Industry. Median Industry Fly X Ratios Current Ratio 1.43X 1.45 Quick Ratio 0.84X 0.88 Total Asset Turnover Ratio 0.85 1.30 Inventory Turnover Ratio 6.15 12.10 Average Inventory Ratio 59.35 30.17 Receivables Turnover 9.82 13.08 Average Collection Period 37.17 27.90 Debt Ratio 0.52 0.39
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Batching
Terminology Matching
Asset Turnover Ratio
Current Ratio
Days in Inventory Ratio
Debt to Assets Ratio
Financial Pressure
Fraud
Fraud Triangle
Free Cash Flow
Horizontal Analysis
Human Resource Controls
hp
A measure of solvency and cash remaining from operating activities
after adjusting for capital expenditures and dividends paid
A measure of how efficiently a company uses its assets to generate
sales; computed as net sales divided by average total assets
A measure of the average number of days inventory is held; computed as
inventory turnover divided into 365 days
A measure of the percentage of total financing provided by creditors;
computed as total liabilities divided by total assets
A measure used to evaluate a company's liquidity and short-term debt-
paying ability calculated as current assets divided by current liabilities
Dishonest act by an employee that results in personal benefit to the
employee at a cost to the employer
Opportunity, financial pressure, and…
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Identify which of the following six metrics a through f best completes questions 1 through 3 below. a. Days’ sales uncollected d. Return on total assets b. Accounts receivable turnover e. Total asset turnover c. Working capital f. Profit margin 1. Which two ratios are key components in measuring a company’s operating efficiency? Which ratio summarizes these two components? 2. What measure reflects the difference between current assets and current liabilities? 3. Which two short-term liquidity ratios measure how frequently a company collects its accounts?
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Compute the receivable turnover ratio
Also compute the inventory turnover ratio
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The inventory turnover ratio
a.
measures management’s ability to productively employ all of its resources.
b.
measures the efficient use of assets held for resale.
c.
is a stringent measure of liquidity.
d.
provides a measure of the strength of the sales mix the company currently employs.
is d the correct answer?
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What financial metric measures a company's ability to cover its short-term
obligations with its most liquid assets and is calculated by excluding inventory from
the current assets?
A. Quick ratio
B. Current ratio
C. Inventory turnover ratio
D. Return on assets ratio
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EXHIBIT 2 Selected Financial Data for Tesla, Inc., Years Ended December 31,
2015-2019 (in millions, except per share data)
Income Statement Data:
Revenues:
Automotive sales
Automotive leasing
Total automotive revenues
Energy generation and storage.
Services and other
Total revenues
Cost of revenues:
Automotive sales
Automotive leasing
Total automotive cost of revenues
Energy generation and storage
Services and other
Total cost of revenues.
Gross profit (loss)
Operating expenses:
Research and development
Selling, general and administrative
Restructuring and other
Total operating expenses.
Loss from operations
Interest income
Interest expense
Other income (expense), net
Loss before income taxes
Provision for income taxes
2015
2 $3.432
309
3,741
14
291
4,046
Net loss
Net loss attributable to noncontrolling interests
and subsidiaries
2,640
183
2,823
12
287
3,123
924
7.189
922
1,640
(717)
2
(119)
(42)
(876)
13
$ (889)
Years Ended December 31
2016
$5,589 $ 8,535
762
1.107
9,642
1.116
6,351…
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NOTE: PLEASE ANSWER A, B, C AND D ONLY!!! ASAP
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The 2024 income statement of Adrian Express reports sales of $20,310,000, cost of goods sold of $12,500,000, and net income of
$1,900,000. Balance sheet information is provided in the following table.
Assets
Current assets:
Cash
Accounts receivable
Inventory
ADRIAN EXPRESS
Balance Sheets
December 31, 2024 and 2023
Long-term assets
Total assets
Liabilities and Stockholders' Equity
Current liabilities
Long-term Liabilities
Common stock
Retained earnings
Total liabilities and stockholders' equity
Industry averages for the following four risk ratios are as follows:
Gross profit ratio
Return on assets
Profit margin
Asset turnover
Return on equity
45%
25%
15%
6.5
35%
tines
2024
2023
$800,000
$910,000
1,725,000 1,175,000
2,175,000
1,625,000
5,000,000 4,390,000
$9,700,000 $8,100,000
$2,030,000 $1,820,000
2,490,000 2,560,000
2,025,000 1,975,000
3,155,000 1,745,000
$9,700,000 $8,100,000
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what can you say about the asset management of the corporation based on the ratios?
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Case 1: Vertical Analysis of Profit and LossPrepare a vertical analysis of the income statements of GMA from 2007 to 2010 by usingRevenues as the base.1. Describe the trend of revenues from 2007 to 2010. What observations can be drawn?2. Describe the trend of direct costs from 2007 to 2010. What observations can be drawn?3. Describe the trend of operating expenses from 2007 to 2010. What observations can be drawn?4. Describe the trend of operating income from 2007 to 2010. What observations can be drawn?5. Describe the trend of net income from 2007 to 2010. What observations can be drawn?
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36
Ratio Analysis - Explain how the following ratios are calculated and what the ratio indicates. Include how these ratios provide useful information related to accounting decision making topics such as efficiency (collecting amounts owed to the firm, using the assets well, getting items to market, etc.), liquidity (ability to pay current debts), solvency (ability to pay long term or all debts)
Asset Turnover
Return on Assets
Current Ratio
Accounts Receivable Turnover
Average Collection Period
Debt Ratio
Days’ sales in Inventory
Gross Profit Percentage
Return on Sales Ratio
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What are three of the benefits of common-sized analysis using the inverse operating asset turnover (ATO) ratios?
a) provides insight into the age of the assets
b) the item is expressed as a percentage of current year sales
c) is more comparable year-to-year than other methods
d) negates the issue with small denominators
e) it provides a common denominator for all accounts
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Question: Which financial ratio measures the proportion of net income generated per dollar of revenue? A) Return on Investment ( ROI) B) Operating Profit Margin C) Return on Sales (ROS) D) Earnings per Share (EPS)
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Leverage ratioa. interest coverage ratio =operating income / interest expensesb. Debt service ratio=operating income/debt service
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