Concept explainers
1.
Concept Introduction:
Accounting has formula that represents assets is equal to the liabilities plus owner’s equity. Each year owner’s equity is calculated by after reducing and adding the profit or loss of the year. Net Income or profit is calculated by reducing expenses from revenues.
Debt ratio is calculated from debt dividing by the total assets.
To Calculate: Debt ratio of current year and of prior year of company A.
2.
Concept Introduction:
Accounting has a formula that represents assets is equal to the liabilities plus owner’s equity. Each year owner’s equity is calculated by after reducing and adding the profit or loss of the year. Net Income or profit is calculated by reducing expenses from revenues.
Debt ratio is calculated from debt dividing by the total assets.
To Calculate: Trend of Financial Leverage.
3.
Concept Introduction:
Accounting has a formula that represents assets is equal to the liabilities plus owner’s equity. Each year owner’s equity is calculated by after reducing and adding the profit or loss of the year. Net Income or profit is calculated by reducing expenses from revenues.
Debt ratio is calculated from debt dividing by the total assets.
To Calculate: Comparison of company A with company B and company C.
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Check out a sample textbook solutionChapter 2 Solutions
Loose Leaf for Financial Accounting: Information for Decisions
- RATIO ANALYSIS The Corrigan Corporation's 2014 and 2015 financial statements follow, along with some industry average ratios. a. Assess Corrigan's liquidity position, and determine how itcompares with peers and how the liquidity position has changed over time.b. Assess Corrigan's asset management position, and determine how it compares with peers and how its asset management efficiency has changed over time.C. Assess Corrigan's debt management position, and determine how it compares with peers and how its debt management has changed over time.d. Assess Corrigan's profitability ratios, and determine how they compare with peers and how its profitability position has changed over time.e. Assess Corrigan's market value ratios, and determine how its valuation compares with peers and how it has changed over time.f. Calculate Corrigan's ROE as well as the industry average ROE, using the DuPont equation. From this analysis, how does Corrigan's financial position compare with the industry…arrow_forwardCertain financial ratios for The Gap for its most recent year are given below, along with the average ratios for its industry. Based on those ratios, answer the following. 1) Does The Gap seem to prefer to finance its assets with debt or with equity? How can you tell? What percent of its assets are funded with debt? What percent of its assets are funded with equity? 2) A supplier to The Gap sells merchandise to The Gap and asks to be paid within 60 days. While any of The Gap’s financial ratios might be of interest to the supplier, which of the ratios listed below do you think would likely be the most important one to the supplier? Why? 3) Which of the ratios presented suggest that, compared to its industry, The Gap may have a problem controlling its operating expenses? How can you tell? Your answer should clearly indicate that you understand why the ratio that you chose answers this question. Here is the data for The Gap and its industry. Financial Ratios…arrow_forwardUsing the Value Line Investment Survey report in Exhibit 11.5, find the following information for Apple. What was the amount of revenues (i.e., sales) generated by the company in 2017? What were the latest annual dividends per share and dividend yield? What is the earnings per share (EPS) projection for 2019? How many shares of common stock were outstanding? What were the book value per share and EPS in 2017? How much long-term debt did the company have in the third quarter of 2018?arrow_forward
- As a first step, we need to estimate what percentage of MMMs capital comes from debt, preferred stock, and common equity. This information can be found on the firms latest annual balance sheet. (As of year end 2014, MMM had no preferred stock.) Total debt includes all interest-bearing debt and is the sum of short-term debt and long-term debt. a. Recall that the weights used in the WACC are based on the companys target capital structure. If we assume that the company wants to maintain the same mix of capital that it currently has on its balance sheet, what weights should you use to estimate the WACC for MMM? b. Find MMMs market capitalization, which is the market value of its common equity. Using the sum of its short-term debt and long-term debt from the balance sheet (we assume that the market value of its debt equals its book value) and its market capitalization, recalculate the firms debt and common equity weights to be used in the WACC equation. These weights are approximations of market-value weights. Be sure not to include accruals in the debt calculation.arrow_forwardWith the 2013 data still on the screen, click the Chart sheet tab. The chart presented shows the rates of return for Global Technology for the last five years. Answer the following questions: a. In 2009, the rate of return on assets exceeded the rate of return on common stockholders equity. Why might this have occurred? Be as specific as possible. b. Is the company better off in 2013 than it was in 2009? Why or why not? When the assignment is complete, close the file without saving it again. Worksheet. Modify the RATIOA4 worksheet to have it compute two additional activity ratios: number of days sales in receivables and number of days sales in merchandise inventory. Use the 2012 and 2013 data and assume a 365-day year. Write out the formulas for your ratios in the spaces provided. Days sales in receivables (average collection period) ________________ Days sales in inventory (average sales period) ________________ Preview the printout to make sure that the worksheet will print neatly, and then print the worksheet. Save the completed file as RATIOAT. Chart. Using the RATIOA4 file, prepare a column chart that compares the acid test and current ratios for Global Technology for 2012 and 2013. Complete the Chart Tickler Data Table and use it as a basis for preparing the chart. Enter all appropriate titles, legends, and formats. Enter your name somewhere on the chart. Save the file again as RATIOA4. Print the chart.arrow_forwardGiven the financial data in the popup window, , for Disney (DIS) and McDonald's (MCD), compare these two companies using the following financial ratios: debt ratio, current ratio, total asset turnover, financial leverage component (equity miltiplier), profit margin, and return on equity. Which company would you invest in, either as a bondholder or as a stockholder? The debt ratio for Disney is nothing. (Round to four decimal places.) Help Me Solve ThisView an Example Get More Help Clear All Check Answer Data Table Click on the following Icon in order to past this table's content into a spreadsheet. Disney McDonald's Sales $48,792 $28,023 EBIT $12,116 $8,123 Net Income $7,572 $5,507 Current Assets $15,187 $5,004 Total Assets $84,112 $36,637 Current Liabilities $13,105 $3,064…arrow_forward
- RATIO ANALYSIS The Corrigan Corporation’s 2017 and 2018 financial statements follow,along with some industry average ratios.a. Assess Corrigan’s liquidity position, and determine how it compares with peers andhow the liquidity position has changed over time.b. Assess Corrigan’s asset management position, and determine how it compares withpeers and how its asset management efficiency has changed over time.c. Assess Corrigan’s debt management position, and determine how it compares withpeers and how its debt management has changed over time.d. Assess Corrigan’s profitability ratios, and determine how they compare with peersand how its profitability position has changed over time.e. Assess Corrigan’s market value ratios, and determine how its valuation compares withpeers and how it has changed over time. Assume the firm’s debt is priced at par, sothe market value of its debt equals its book value. f. Calculate Corrigan’s ROE as well as the industry average ROE, using the DuPontequation.…arrow_forwardSelected financial data for Bahama Bay and Caribbean Key are as follows:Required:1. Calculate the debt to equity ratio for Bahama Bay and Caribbean Key for the most recent year. Which company has the higher ratio?2. Calculate the return on assets for Bahama Bay and Caribbean Key. Which company appears more profitable?3. Calculate the times interest earned ratio for Bahama Bay and Caribbean Key. Which company is better able to meet interest payments as they become due?arrow_forwardThese are the three long term solvency ratios for Facebook Inc. Based on these numbers, how well is the company doing? How are their levels of debt financing?arrow_forward
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