Cornerstones of Financial Accounti...

4th Edition

Jay Rich + 1 other

ISBN: 9781337690881

Textbook Problem

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Using Common Size Statements

Twisted Company owns and operates a small chain of pretzel stands located near colleges and universities. Twisted has experienced significant growth in recent years. The following data are available for Twisted:

Required:

1. Determine how much Twisted’s sales, net income, and assets have grown during these 3 years.

2. Explain how Twisted has financed the increase in assets.

3. Determine whether Twisted’s liquidity is adequate.

4. CONCEPTUAL CONNECTION Explain why interest expense is growing.

5. If Twisted’s sales grow by 25% in 2020. What would you expect net income to be?

6. If Twisted’s assets must grow by 25% to support the 25% sales increase and if 50% of net income is paid in dividends, how much capital must Twisted raise in 2020?

To determine

(a)

Income statement shows that how much income and expense in the current a calendar or financial year.

Balance sheet shows that what is the position of the company in a particular date. Balance sheet also shows that the how much company has working capital for day to day transaction.

To discuss:

Determine how much the Twisted’s company sale, net income and assets have grown during last in 3 years.

Explanation

Shows this table for Last year 3 sale, net income and fixed year

Particular	2019	2018	2017
Sale

To determine

(b)

Increase in assets means the company increases the production for the expand the business so that the company finance the find from the different source and use for the purchase of different kind of assets.

To discuss:

Explain how twisted has financed the increase in assets.

To determine

(c)

Liquidity ratio means that this formula’s shows that company is able to pay its own debt on timely or not.

In the liquidity there is two types of formula which on is current ratio and second one is the quick ratio.

Current ratio shows that the relationship between current assets and current liabilities.

To compute:

Find the Twisted’s liquidate is adequate.

To determine

(d)

Interest expense means if company taking the loan amount from the outside the business then the company pay the interest on the particular debt. Interest expense shows in the income statement and this expense reduce the company profit.

To discuss:

Define why interest expense increase.

To determine

(e)

The company wants to increase the sale proportion then definitely the company’s increase the variable expense in the same proportion, and net profit increase as per their ratio.

To compute:

Twisted company increase the sale proportion then what effect in the net profit.

To determine

(f)

Company wants that company increase the shareholder worth and also increase the company earning per share and also increase the production for increase the sale so increase the net income.

To discuss:

Company want increase the 25% assets by the support the increase the 25% sale and also company wants that the dividend paid to the shareholder 50% of net income, the how much company take borrow by the capital or any other sources.

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