ACCT212 Course Discussions Week 7

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ACCT212 Course Discussions Week 7
Select any one public company that interests you, look up its stock symbol on the Internet…

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ACCT212 Course Discussions Week 7

ACCT212 Course Discussions Week 7

All Students Posts – 100 Pages

Financial Statement Analysis – 53 Pages 

Select any one public company that interests you, look up its stock symbol on the Internet, and enter this symbol into the Quote Lookup box under the Finance link at Yahoo. Using the data available, calculate the Current Ratio and Quick Ratio for this company. Is there a difference between these two measures for this specific organization? Why or why not? If there is a difference, explain what exactly is causing it.

The formula for Quick Ratio:

Quick Ratio  =Cash + Short-Term Investment + Accounts Receivable                                 Total Current Liabilities

Under the Balance Sheet/Asset, we get the totals from the following:  Cash & Equivalents 53,528.00 + Marketable Securities (cash & equivalents – Market securities) 601.00 + Accounts Receivable 12,439.00 = 66,568

Under Equity & Liabilities/Total current Liabilities = 27,050.00

66,568 / 27,050 = 2.5 Quick Ratio

Formula for Current Ratio:

Current Ratio =Total Current Assets          Total Current Liabilities

Under the Balance Sheet/Asset, we get the totals from the following:  Current Assets = 70,994.00.

Under Equity & Liabilities/Total Current Liabilities = 27,050.00

70,994.00/27,050.00 = 2.6 Current Ratio

In this case, they’re not much of a difference between current ratio & quick ratio. The current ratio measures the ability to pay current liabilities with current assets…

Analysis Exercises – 47 Pages 

Let’s start with Exercise 13-19A by preparing a common-size income statement for the McMahon Music Co. Do this in Excel. Do not post your spreadsheet in the discussion, but rather, place a screenshot of it. How did you format the cells? Any suggestions on where to obtain assistance with building the spreadsheet?

Common-size income statements can be prepared in two ways: Vertical Analysis and Horizontal Analysis.  Under vertical common-size analysis, each item of income statement is expressed as a percentage of total revenue for the period. This analysis is conducted to analyze how much a certain item has consumed from or contributed to total revenue. Under the Horizontal Analysis each item is expressed a percentage of similar corresponding item from base period. This analysis help us determine the change in each item over a period of time.

1 Vertical common-size income statement

Preparing vertical common-size income statements is pretty straight-forward. Consider the following example income statement:

Pak Accountants Inc.
Income Statement as at _________
Sales850,000
Cost of Sales(730,000)
Gross profit120,000
Administrative expenses(35,000)
Distribution expenses(12,000)
Operating profit73,000
Interest expense(11,000)
Profit before tax62,000
Tax(9,000)
Profit after tax53,000

Take each item and divide it over sales amount and multiply it to 100 to get the percentage. For example, dividing cost of sales over sales will give us 0.8588 [730,000 / 850,000]. Multiplying 0.8588 with 100 gives us 85.88%.

Remember the figures mentioned in brackets mean they are subtracted. This adds to the understanding of user as they can clearly see what figures are being deducted. Personally I like to keep the brackets with percentages as well so that users can understand these figures pertain to expenses or anything causing the profits/revenue to reduce.

Following shows the income statement with workings and percentages calculated:

Pak Accountants Inc.
Income Statement as at _________
$Working%
Sales850,000850,000/850,000100 %
Cost of Sales(730,000)(730,000)/850,000(85.88) %
Gross profit120,000120,000/850,00014.12 %
Administrative expenses(35,000)(35,000)/850,000(4.12) %
Distribution expenses(12,000)(12,000)/850,000(1.41) %
Operating profit73,00073,000/850,0008.59 %
Interest expense(11,000)(11,000)/850,000(1.29) %
Profit before tax62,00062,000/850,0007.29 %
Tax(9,000)(9,000)/850,000(1.06) %
Profit after tax53,00053,000/850,0006.24 %