Chapter 13: Exercises

Exercise 13-1: Building Blocks of Analysis (C1) • Match each financial ratio (e.g., equity ratio, return on total assets, acid-test ratio) to its primary financial analysis category: Liquidity and efficiency, Solvency, Profitability, or Market prospects. Exercise 13-2: Identifying Financial Ratios (C1) • Identify which metrics complete the following: 1. Key components of operating efficiency. 2. Measure reflecting the difference between current assets and liabilities. 3. Short-term liquidity ratios for account collections. Exercise 13-3: Computing and Analyzing Trend Percents (P1) • Calculate trend percentages for accounts using 2017 as the base year and interpret whether trends are favorable or unfavorable. Exercise 13-4: Common-Size Percents (P2) • Calculate common-size percentages for comparative income statements and determine which item most impacts net income. Exercise 13-5: Income Effects from Common-Size and Trend Percents (P1, P2) • Determine if Roxi Company’s net income increased, decreased, or remained constant based on common-size and trend percentages for sales, cost of goods sold, and expenses. Exercise 13-6: Common-Size Balance Sheets (P2) 1. Express Simon Company’s balance sheets as common-size percentages. 2. Evaluate whether changes in accounts receivable and inventory percentages are favorable. Exercise 13-7: Analyzing Liquidity (P3) • Using Simon Company’s balance sheets, compute the current and acid-test ratios over three years and analyze whether these ratios improved. Exercise 13-8: Analyzing and Interpreting Liquidity (P3) 1. For Simon Company’s recent income statements, compute: o Days' sales uncollected o Accounts receivable turnover Inventory turnover o Days’ sales in inventory 2. Evaluate improvement or decline in each ratio over the current year. o Exercise 13-9: Analyzing Risk and Capital Structure (P3) 1. Calculate debt and equity ratios, debt-to-equity ratio, and times interest earned for Simon Company, comparing risk levels over the last two years. Exercise 13-10: Analyzing Efficiency and Profitability (P3) 1. For both the current and prior year, calculate: o Profit margin ratio o Total asset turnover o Return on total assets 2. Assess if Simon Company’s efficiency and profitability improved. Exercise 13-11: Analyzing Profitability (P3) 1. For Simon Company, calculate: o Return on equity o Dividend yield o Price-earnings ratio 2. Compare market expectations against a competitor’s price-earnings ratio. Exercise 13-12: Effects of Transactions on Current Ratio (P3) • For 5G Co., assess how various transactions impact current assets, liabilities, and current ratio. Exercise 13-13: Current Ratio and Profit Margin (P3) • Compute current ratio and profit margin for Niantic with provided financial data. Exercise 13-14: Efficiency and Profitability Analysis (P3) 1. Compute profit margin and return on total assets for BioBeans and GreenKale. 2. Determine the preferred investment based on these metrics. Exercise 13-15: Reconstructing an Income Statement Using Ratios (P3) • Fill in an incomplete income statement using additional information on return on assets, inventory turnover, and accounts receivable turnover. Exercise 13-16: Interpreting Financial Ratios (A1, P3) 1. For Roak and Clay, similar firms: o Compare profit margin, asset turnover, and return on assets. o Determine which has better growth in sales. o Analyze financial leverage effectiveness by comparing return on assets with interest rates. Exercise 13-17A: Income Statement Categories (A2) • For Randa Merchandising Inc., classify items from a discontinued segment and other unusual income items into income statement categories. Exercise 13-18A: Income Statement Presentation (A2) • Using information from Exercise 13-17A, prepare Randa’s December 31 year-end income statement, excluding earnings per share. These exercises cover a range of financial analyses, from trend analysis and common-size statements to in-depth ratio computations and interpretations critical for financial decision-making and evaluation.