Concept introduction:
Financial Statement analysis is done using the components of financial statement. These components are Balance sheet, Income statement, Statement of
Common Size Financial Statement: Common Size Analysis is prepared as % format which shows readymade analysis for the financial statements. For the Income statement the common size format shows all the amounts as a % of sales revenue and for the Balance sheet the common size format shows the each items of the balance sheet as a % of the Total assets amount.
To indicate:
The Net income trend.
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MANAGERIAL ACCOUNTING ACCT 2302 >IC<
- Calculate the financial indicators of the firm Merck for the year 2018 and fill in the spaces marked in the table. Company Name: Year 2018 Chemicals and Allied Products Industry Ratios ………….. Solvency or Debt Ratios Merck J&J 2018 Debt ratio …. …. 0.47 Debt-to-equity ratio …. …. 0.38 Interest coverage ratio …. …. -9.43 Liquidity Ratios Current ratio …. …. 3.47 Quick ratio …. …. 2.12 Cash ratio …. …. 2.24 Profitability Ratios Profit margin …. …. -93.4% ROE (Return on equity), after tax …. …. -248.5 ROA (Return on assets) …. …. -146.5 Gross margin …. …. 55.3% Operating margin (Return on sales) …. …. -42.9% Activity or Efficiency Ratios Asset turnover …. …. 1.08 Receivables turnover (days) …. …. 16 Inventory turnover (days)…arrow_forwardThe Table also provides financial indicators for the chemical and related products industry (Chemicals and Allied Products) for the year 2018. This will allow you to compare the performance of both firms J & J and Merck with the industry in which they compete for the same year. Do you understand that the performance of firms is superior to the average performance of their competitors in the market? Justify your answer. What adjustments or changes would you recommend to make each of the firms more attractive to shareholders and others interested in them? Justify your answer. Company Name: Year 2018 Chemicals and Allied Products Industry Ratios ………….. Solvency or Debt Ratios Merck J&J 2018 Debt ratio 0.67 0.61 0.47 Debt-to-equity ratio 0.93 0.51 0.38 Interest coverage ratio 12.27 18.91 -9.43 Liquidity Ratios Current ratio 1.17 1.47 3.47 Quick ratio 0.92 1.16 2.12 Cash…arrow_forwardIn 2016, the Allen Corporation had sales of $61 million, total assets of $43 million, and total liabilities of $15 million. The interest rate on the company's debt is 5.8 percent, and its tax rate is 35 percent. The operating profit margin is 14 percent. a. Compute the firm's 2016 net operating income and net income. b. Calculate the firm's operating return on assets and return on equity. (Hint: You can assume that interest must be paid on all of the firm's liabilities.)arrow_forward
- Volbeat Corp. shows the following information on its 2015 income statement: sales = $255,000; costs = $156,000; other expenses = $7,900; depreciation expense = $15,600; interest expense = $14,800; taxes = $21,245; dividends = $12,000. In addition, you're told that the firm issued $6,300 in new equity during 2015 and redeemed $4,800 in outstanding long-term debt. a. What is the 2015 operating cash flow? b. What is the 2015 cash flow to creditors? c. What is the 2015 cash flow to stockholders?arrow_forwardThe statement of members equity for Bonanza, LLC, follows: a. What was the income-sharing ratio in 2016? b. What was the income-sharing ratio in 2017? c. How much cash did Thomas Dunn contribute to Bonanza, LLC, for his interest? d. Why do the member equity accounts of Idaho Properties, LLC, and Silver Streams, LLC, have positive entries for Thomas Dunns contribution? e. What percentage interest of Bonanza did Thomas Dunn acquire? f. Why are withdrawals less than net income?arrow_forwardJetson Spacecraft Corp. shows the following information on its 2015 income statement: sales = $319,767; costs = $178,650; other expenses = $5,786; depreciation expense = $18,444; interest expense = $14,233; taxes = $17,008; dividends = $10,711. In addition, you’re told that the firm issued $5,368 in new equity during 2015 and redeemed $5,570 in outstanding long-term debt. If net fixed assets increased by $21,756 during the year, what was the addition to NWC?arrow_forward
- The Donahoo Western Furnishings Company was formed onDecember 31, 2014, with $1,000,000 in equity plus $500,000in long-term debt. On January 1, 2015, all of the firm’s capitalwas held in cash. The following transactions occurred duringJanuary 2015:• January 2: Donahoo purchased $1,000,000 worth of furniturefor resale. It paid $500,000 in cash and financed the balanceusing trade credit that required payment in 60 days.• January 3: Donahoo sold $250,000 worth of furniture that ithad paid $200,000 to acquire. The entire sale was on creditterms of net 90 days.• January 15: Donahoo purchased more furniture for $200,000.This time, it used trade credit for the entire amount of thepurchase, with credit terms of net 60 days.• January 31: Donahoo sold $500,000 worth of furniture,for which it had paid $400,000. The furniture was soldfor 10 percent cash down, with the remainder payablein 90 days. In addition, the firm paid a cash dividend of$100,000 to its stockholders and paid off $250,000 of…arrow_forwardCalculate the financial indicators of the firms J&J for the year 2018 and fill in the spaces marked in the table. Company Name: Year 2018 Chemicals and Allied Products Industry Ratios ………….. Solvency or Debt Ratios Merck J&J 2018 Debt ratio …. …. 0.47 Debt-to-equity ratio …. …. 0.38 Interest coverage ratio …. …. -9.43 Liquidity Ratios Current ratio …. …. 3.47 Quick ratio …. …. 2.12 Cash ratio …. …. 2.24 Profitability Ratios Profit margin …. …. -93.4% ROE (Return on equity), after tax …. …. -248.5 ROA (Return on assets) …. …. -146.5 Gross margin …. …. 55.3% Operating margin (Return on sales) …. …. -42.9% Activity or Efficiency Ratios Asset turnover …. …. 1.08 Receivables turnover (days) …. …. 16 Inventory turnover (days)…arrow_forwardHamilton Corp. is a reinsurance and financial services company. Hamilton strongly believes in evaluating the performance of its stand-alone divisions using financial metrics such as ROI and residual income. For the year ended December 31, 2017, Hamilton’s CFO received the following information about the performance of the property/casualty division: Sales revenues $ 900,000 Operating income 225,000 Total assets 1,500,000 Current liabilities 300,000 Debt (interest rate: 5%) 400,000 Common equity (book value) 500,000 For the purposes of divisional performance evaluation, Hamilton defines investment as total assets and income as operating income (that is, income before interest and taxes). The firm pays a flat rate of 25% in taxes on its income. Q. Hamilton’s CFO has heard about EVA and is curious about whether it might be a better measure to use for evaluating division managers. Hamilton’s four divisions have similar risk characteristics. Hamilton’s debt trades at book value while its…arrow_forward
- Hamilton Corp. is a reinsurance and financial services company. Hamilton strongly believes in evaluating the performance of its stand-alone divisions using financial metrics such as ROI and residual income. For the year ended December 31, 2017, Hamilton’s CFO received the following information about the performance of the property/casualty division: Sales revenues $ 900,000 Operating income 225,000 Total assets 1,500,000 Current liabilities 300,000 Debt (interest rate: 5%) 400,000 Common equity (book value) 500,000 For the purposes of divisional performance evaluation, Hamilton defines investment as total assets and income as operating income (that is, income before interest and taxes). The firm pays a flat rate of 25% in taxes on its income. Q. What was the net income after taxes of the property/casualty division?arrow_forwardHamilton Corp. is a reinsurance and financial services company. Hamilton strongly believes in evaluating the performance of its stand-alone divisions using financial metrics such as ROI and residual income. For the year ended December 31, 2017, Hamilton’s CFO received the following information about the performance of the property/casualty division: Sales revenues $ 900,000 Operating income 225,000 Total assets 1,500,000 Current liabilities 300,000 Debt (interest rate: 5%) 400,000 Common equity (book value) 500,000 For the purposes of divisional performance evaluation, Hamilton defines investment as total assets and income as operating income (that is, income before interest and taxes). The firm pays a flat rate of 25% in taxes on its income. Q. Based on Hamilton’s required rate of return of 8%, what was the property/casualty division’s residual income for 2017?arrow_forwardHamilton Corp. is a reinsurance and financial services company. Hamilton strongly believes in evaluating the performance of its stand-alone divisions using financial metrics such as ROI and residual income. For the year ended December 31, 2017, Hamilton’s CFO received the following information about the performance of the property/casualty division: Sales revenues $ 900,000 Operating income 225,000 Total assets 1,500,000 Current liabilities 300,000 Debt (interest rate: 5%) 400,000 Common equity (book value) 500,000 For the purposes of divisional performance evaluation, Hamilton defines investment as total assets and income as operating income (that is, income before interest and taxes). The firm pays a flat rate of 25% in taxes on its income. Q. What was the division’s ROI for the year?arrow_forward
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