Question:
Financial Statement Analysis. (Put an article link to support your answer)
Describe three to five industry average ratios and explain how a company management might use the information.
What factors might limit the effectiveness of using ratio analysis?
Problem 1You have the opportunity to invest $10,000 in one of two companies that are part of the same industry. The only information you have about the companies is presented below. Assume that high means in the top third of the industry, average means in the middle third and low is in the bottom third. Based on this information, which company would you select? Explain you selection.
Ratio Company A Company BROA Average HighProfit Margin Low HighFinancial Leverage Low HighCurrent ratio High LowPrice/Earnings Average HighDebt-to-Equity Low High
Problem 2Below are current year financial statements for two companies in the same industries and direct competitors. Both companies have been in operation approximately the same length of time.
Company A Company BBalance Sheet Cash 31,000 16,000Accounts receivable (net) 29,000 24,000Inventory 87,000 29,000Property and equipment, net 125,000 394,000Other assets 79,000 298,000 Total assets 351,000 761,000Current liabilities 91,000 47,000Long-term debt (5% interest) 62,000 58,000Capital stock ($5 par) 145,000 505,000Contributed capital in excess of par 18,000 103,000Retained earnings 35,000 48,000 Total liabilities and stockholdersÂ’ equity 351,000 761,000Income Statement Sales revenue (1/3 of sales on credit) 452,000 799,000Cost of goods sold (250,000) (396,000)Expenses (including interest and taxes) (161,000) (308,000) Net income 41,000 95,000Selected data from prior year Accounts receivable (net) 16,000 33,000Inventory 81,000 42,000Property and equipment, net 110,000 375,000Long-term debt 65,000 70,000Other data Market price per share at end of current year $16 $13Average income tax rate 25% 25%Dividends declared and paid in current year 22,000 88,000
Required:1) Prepare a schedule reflecting a ratio analysis of each company. Compute all ratios from the module for which you have enough data.2) If an investor were considering an investment in one of these companies, which would you recommend based on this data? Explain your response.
Problem 3Below are ratios for two companies which operate in the same industry.
Company A Company BP/E 27.8 63.0Gross profit margin 59.1 66.2Profit Margin 8.6 13.1Quick .8 0.5Current 1.2 0.65Debt-to-equity .45 0.78Return on equity 29.0 26.9Return on assets 16.8 28.2Dividend yield 1.7 1.2Dividend payout 44.0 67.0
Required:Evaluate the companies as a potential investment based on the given ratios.
Question 6 3 points Save In 2011, Jeffrey Company disposed of a segment of its business and incurred a pretax loss on the disposal of $40,000. In the same year, a flood caused $15,000 of damages to the building. The flood damage qualified as an extraordinary item. Income from continuing operations before taxes was $100,000 for 2011 and the 20 percent tax rate applied to all of the items above. Prepare a partial income statement starting with income from continuing operations before taxes for the year 2011 and concluding with net income.
Question 7 :Carolina Company computed the following ratios for a two year period:(refer to image) Required: Comment on the trend of each of the ratios from 2009 to 2010. State concerns or possible implications for the future of each.