TASK 6 FINANCIAL RATIOSRequired:a. Compute for the company's profitability and operating efficiency ratios in 2014.b. Compute for the financial health ratios of the company in 2014 and 2013.Very Berry CompanyVery Berry CompanyStatement of Comprehensive IncomeStatement of financial PositionFor the year ended December 31For the year ended December 312014201320142013Cash400,000180,000Short-term Investments5,600,0001,800,000Sales10,040,0008,760,0005,860,0002,800,0001,680,0001,480,0001,380,0008,860,000Accounts Receivable1,060,000Cost of Goods Sold5,680,0004,360,0001,160,000Inventory1,640,000Gross ProfitOther Current Assets4,680,000Operating ExpensesOperating IncomeInterest ExpenseTotal Current Assets10,860,0005,040,0001,20,000Equipment6,800,0005,200,00010,240,0003,200,000100,00028,000Total Assets17,660,0003,100,0001,192,000Accounts PayableNotes Payable – long termOwner, CapitalTotal Liabilities and CapitalNet Income6,660,0002,620,0002,460,0002,120,0008,600,0005,500,00017,660,00010,240,000

Ratios are calculated to establish the relationship between 2 variables to determine the financial…

Answered: Required: a. Compute for the company's…

Required: a. Compute for the company's profitability and operating efficiency ratios in 2014. b. Compute for the financial health ratios of the company in 2014 and 2013. Very Berry Company

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter13: Financial Statement Analysis

Section: Chapter Questions

Problem 13.12E

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Profitability ratios The following selected data were taken from the financial statements of Robinson Inc. for December 31, 2016, 2015 and 2014: December31 2016 2015 2014 Total assets......................................... 4,800,000 4,400,000 4,000,000 Notes payable (8% interest)........................... 2,250,000 2,250,000 2,250,000 Common stock...................................... 250,000 250,000 250,000 Preferred 4% stock, 100 par (no change during year)........................... 500,000 500,000 500,000 Retained earnings................................... 1,574,000 1,222,000 750,000 The 2016 net income was 372,000, and the 2015 net income was 492,000. No dividends on common stock were declared between 2014 and 2016. a. Determine the rate earned on total assets, the rate earned on stockholders equity, and the rate earned on common Stockholders equity for the years 2015 and 2016. Round to one decimal place. b. What conclusions can be drawn from these data as to the companys profitability?
Profitability Ratios Tinker Corporation operates in the highly competitive consulting industry. Tinkers balance sheet indicates the following balances as of December 31, 2019. Required: Calculate Tinkers return on equity if Tinkers 2019 net income is $90,000.
Effect of Industry Characteristics on Financial Statement Relations. Effective financial statement analysis requires an understanding of a firms economic characteristics. The relations between various financial statement items provide evidence of many of these economic characteristics. Exhibit 1.22 (pages 6061) presents common-size condensed balance sheets and income statements for 12 firms in different industries. These common-size balance sheets and income statements express various items as a percentage of operating revenues. (That is, the statement divides all amounts by operating revenues for the year.) Exhibit 1.22 also shows the ratio of cash flow from operations to capital expenditures. A dash for a particular financial statement item does not necessarily mean the amount is zero. It merely indicates that the amount is not sufficiently large enough for the firm to disclose it. Amounts that are not meaningful are shown as n.m. A list of the 12 companies and a brief description of their activities follow. A. Amazon.com: Operates websites to sell a wide variety of products online. The firm operated at a net loss in all years prior to that reported in Exhibit 1.22. B. Carnival Corporation: Owns and operates cruise ships. C. Cisco Systems: Manufactures and sells computer networking and communications products. D. Citigroup: Offers a wide range of financial services in the commercial banking, insurance, and securities business. Operating expenses represent the compensation of employees. E. eBay: Operates an online trading platform for buyers to purchase and sellers to sell a variety of goods. The firm has grown in part by acquiring other companies to enhance or support its online trading platform. F. Goldman Sachs: Offers brokerage and investment banking services. Operating expenses represent the compensation of employees. G. Johnson Johnson: Develops, manufactures, and sells pharmaceutical products, medical equipment, and branded over-the-counter consumer personal care products. H. Kelloggs: Manufactures and distributes cereal and other food products. The firm acquired other branded food companies in recent years. I. MGM Mirage: Owns and operates hotels, casinos, and golf courses. J. Molson Coors: Manufactures and distributes beer. Molson Coors has made minority ownership investments in other beer manufacturers in recent years. K. Verizon: Maintains a telecommunications network and offers telecommunications services. Operating expenses represent the compensation of employees. Verizon has made minority investments in other cellular and wireless providers. L. Yum! Brands: Operates chains of name-brand restaurants, including Taco Bell, KFC, and Pizza Hut. REQUIRED Use the ratios to match the companies in Exhibit 1.22 with the firms listed above.
RATIO ANALYSIS Data for Barry Computer Co. and its industry averages follow. a. Calculate the indicated ratios for Barry. b. Construct the DuPont equation for both Barry and the industry. c. Outline Barrys strengths and weaknesses as revealed by your analysis. d. Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2015. How would that information affect the validity of your ratio analysis? (Hint: Think about averages and the effects of rapid growth on ratios if averages are not used. No calculations are needed.) Barry Computer Company: Balance Sheet as of December 31, 2015 (in Thousands) Cash 77,500 Accounts payable 129,000 Receivables 336,000 Other current liabilities 117,000 Inventories 241,500 Notes payable to bank 84,000 Total current assets 655,000 Total current liabilities 330,000 Long-term debt 256,500 Net fixed assets 292,500 Common equity 361,000 Total assets 947,500 Total liabilities and equity 947,500 Barry Computer Company: Income Statement for Year Ended December 31, 2015 (in Thousands) Sales 1,607,500 Cost of goods sold Materials 717,000 Labor 453,000 Heat, light, and power 68,000 Indirect labor 113,000 Depreciation 41,500 1,392,500 Gross profit 215,000 Selling expenses 115,000 General and administrative expenses 30,000 Earnings before interest and taxes (EBIT) 70,000 Interest expense 24,500 Earnings before taxes (EBT) 45,500 Federal and state income taxes (40%) 18,200 Net income 27,300 Ratio Barry Industry Average Current _____ 2.0 Quick _____ 1.3 Days sales outstandinga _____ 35 days Inventory turnover _____ 6.7 aCalculation is based on a 365-day year Total assets turnover _____ 3.0 Profit margin _____ 1.20% ROA _____ 0 ROE _____ 9.00% ROIC _____ 0 TIE _____ 3.0 Debt/Total capital _____ 47.00%
RATIO ANALYSIS Data for Barry Computer Co. and its industry averages follow. a. Calculate the indicated ratios for Barry. b. Construct the DuPont equation for both Barry and the industry. c. Outline Barrys strengths and weaknesses as revealed by your analysis. d. Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2014. How would that information affect the validity of your ratio analysis? (Hint: Think about averages and the effects of rapid growth on ratios if averages are not used. No calculations are needed.) Barry Computer Company: Balance Sheet as of December 31, 2014 (in Thousands) Cash 77,500 Accounts payable 129,000 Receivables 336,000 Other current liabilities 117,000 Inventories 241,500 Notes payable to bank 84,000 Total current assets 655,000 Total current liabilities 330,000 Long-term debt 256,500 Net fixed assets 292,500 Common equity 361,000 Total assets 947,500 Total liabilities and equity 947,500 Barry Computer Company: Income Statement for Year Ended December 31, 2014 (in Thousands) Sales 1,607,500 Cost of goods sold Materials 717,000 Labor 453,000 Heat, light, and power 68,000 Indirect labor 113,000 Depredation 41,500 1,392,500 Gross profit 215,000 Selling expenses 115,000 General and administrative expenses 30,00 Earnings before interest and taxes (EBIT) 70,000 Interest expense 24,500 Earnings before taxes (EBT) 45,500 Federal and state income taxes (40%) 18,200 Net income 27,300 Ratio Barry Industry Average Current ___ 2.0x Quick ___ 1.3x Days sales outstandinga ___ 35 days Inventory turnover ___ 6.7x Total assets turnover ___ 3.0x Profit margin ___ 12% aCalculation is based on a 365 day year. Ratio Barry Industry Average ROA ___ 3.6% ROE ___ 9.0% ROIC ___ 7.5% TIE ___ 3.0x Debt/Total capital ___ 47.0%
Financial statement analysis The financial statements for Nike, Inc., are presented in Appendix D at the end of the text. Use the following additional information (in thousands): Instructions 1. Determine the following measures for the fiscal years ended May 31, 2016, and May 31, 2015. Round ratios and percentages to one decimal place. a. Working capital b. Current ratio c. Quick ratio d. Accounts receivable turnover e. Number of days sales in receivables f. Inventory turnover g. Number of days sales in inventory h. Ratio of liabilities to stockholders equity i. Asset turnover j. Return on total assets. k. Return on common stockholders equity l. Price-earnings ratio, assuming that the market price was 54.90 per share on May 29, 2016, and 52.81 per share on May 30, 2015 m. Percentage relationship of net income to sales 2. What conclusions can be drawn from these analyses?
Effect of Industry Characteristics on Financial Statement Relations. Effective financial statement analysis requires an understanding of a firms economic characteristics. The relations between various financial statement items provide evidence of many of these economic characteristics. Exhibit 1.23 (pages 6263) presents common-size condensed balance sheets and income statements for 12 firms in different industries. These common-size balance sheets and income statements express various items as a percentage of operating revenues. (That is, the statement divides all amounts by operating revenues for the year.) Exhibit 1.23 also shows the ratio of cash flow from operations to capital expenditures. A dash for a particular financial statement item does not necessarily mean the amount is zero. It merely indicates that the amount is not sufficiently large for the firm to disclose it. A list of the 12 companies and a brief description of their activities follow. A. Abercrombie Fitch: Sells retail apparel primarily through stores to the fashionconscious young adult and has established itself as a trendy, popular player in the specialty retailing apparel industry. B. Allstate Insurance: Sells property and casualty insurance, primarily on buildings and automobiles. Operating revenues include insurance premiums from customers and revenues earned from investments made with cash received from customers before Allstate pays customers claims. Operating expenses include amounts actually paid or expected to be paid in the future on insurance coverage outstanding during the year. C. Best Buy: Operates a chain of retail stores selling consumer electronic and entertainment equipment at competitively low prices. D. E. I. du Pont de Nemours: Manufactures chemical and electronics products. E. Hewlett-Packard: Develops, manufactures, and sells computer hardware. The firm outsources manufacturing of many of its computer components. F. HSBC Finance: Lends money to consumers for periods ranging from several months to several years. Operating expenses include provisions for estimated uncollectible loans (bad debts expense). G. Kelly Services: Provides temporary office services to businesses and other firms. Operating revenues represent amounts billed to customers for temporary help services, and operating expenses include amounts paid to the temporary help employees of Kelly. H. McDonalds: Operates fast-food restaurants worldwide. A large percentage of McDonalds restaurants are owned and operated by franchisees. McDonalds frequently owns the restaurant buildings of franchisees and leases them to franchisees under long-term leases. I. Merck: A leading research-driven pharmaceutical products and services company. Merck discovers, develops, manufactures, and markets a broad range of products to improve human and animal health directly and through its joint ventures. J. Omnicom Group: Creates advertising copy for clients and is the largest marketing services firm in the world. Omnicom purchases advertising time and space from various media and sells it to clients. Operating revenues represent commissions and fees earned by creating advertising copy and selling media time and space. Operating expenses includes employee compensation. K. Pacific Gas Electric: Generates and sells power to customers in the western United States. L. Procter Gamble: Manufactures and markets a broad line of branded consumer products. REQUIRED Use the ratios to match the companies in Exhibit 1.23 with the firms listed above.
RATIO ANALYSIS Data for Barry Computer Co. and its industry averages follow. a. Calculate the indicated ratios for Barry. b. Construct the DuPont equation for both Barry and the industry. c. Outline Barrys strengths and weaknesses as revealed by your analysis. d. Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2016. How would that information affect the validity of your ratio analysis? (Hint: Think about averages and the effects of rapid growth on ratios if averages are not used. No calculations are needed.) Ratio Barry Industry Average Current ----- 2.0 Quick ----- 13 Days sales outstandinga ----- 35 days Inventory turnover ----- 6.7 Total assets turnover ----- 3.0 Profit margin ----- 1.2% ROA ------ 3.6% ROE ----- 9.0% ROIC ----- 73% TIE ----- 3.0 Debt/Total capital ----- 47.0% aCalculation is based on a 365-day year.
Basic Elements of Financial Reports Comparative income statements for Grammar Inc. are as follows: Required The president and management believe that the company performed better in 2016 than it did in 2015. Write the presidents letter to be included in the 2016 annual report. Explain why the company is financially sound and why shareholders should not be alarmed by the $20,000 loss in a year when operating revenues increased significantly.