acc205 ashford university week 5

week_five_exercise_assignment x

Ashford 6: – Week 5

Discussions
To participate in the following discussions, go to this week’s Discussion link in the left navigation.

  1. Ratios Ratios provide the users of financial statements with a great deal of information about the entity.  Do ratios tell the whole story?  How could liquidity ratios be used by investors to determine whether or not to invest in a company?     Guided Response: Let at least two of your peers know how debt service ratios can be used by a lender in determining whether or not to lend money to a company.  
  2. Profit Margin
 

   

9,00010,000

2,5002,500

2,0002,000

2,500

7,000

6,0004,0003,000

2,5002,000

2,0002,0003,000

Year Ending December 2012

Year Ending December 2011

Year Ending December 2010

Revenues

40,000

35,000

3

3,000

Operating Expenses

Salaries

15,000

10,000

9,000

Maintenance and Repairs

6,000

Rental Expense

2,500

Depreciation

2,000

Fuel

4,000

3,500

Total Operating Expenses

29,500

2

7,000

26,000

Operating Income

10,500

8,000

Sales and Administrative Expenses

Interest Expense

1,000

Net Income

Above is a comparative income statement for Cecil, Inc. for the years 2010, 2011, and 2012.  Calculate the profit margin for each of these years.  Comment on the profit margin trend.  Guided Response: Let at least two of your peers posts know what you changes you would recommend to improve the net margin of the company.

 

Exercise Assignment To complete the following assignment, go to this week’s Assignment link in the left navigation.

Financial Ratios Please complete each of the exercises below in a word document. Save the document, and submit to in week using the Assignment Submission button.   Week Five Exercise Assignment  

Carefully review the Grading Rubric for the criteria that will be used to evaluate your assignment.

Final Paper
To complete the following final paper, go to this week’s Final Paper link in the left navigation.

Final Paper Focus of the Final Paper Write a five-to seven-page financial statement analysis of a public company, and formatted according to APA style as outlined in the Ashford Writing Center.   In this analysis you will discuss the financial health of this company with the ultimate goal of making a recommendation to other investors.   Your paper should consist of the following sections: introduction, company overview, horizontal analysis, ratio analysis, final recommendation, and conclusions.  Your paper needs to include a minimum of two scholarly resources in addition to the textbook as references. Here is a breakdown of the sections within the body of the assignment:  
Company Overview Provide a brief overview of your company (one to two paragraphs at most).   What industry is it in?   What are its main products or services?  Who are its competitors?  
Horizontal Analysis of Income Statement and Balance Sheet Prepare a three-year horizontal analysis of the income statement and balance sheet of your selected company.  Discuss the importance and meaning of horizontal analysis.  Discuss both the positive and negative trends presented in your company.  
Ratio Analysis Calculate the current ratio, quick ratio, cash to current liabilities ratio, over a two-year period.   Discuss and interpret the ratios that you calculated.  Discuss potential liquidity issues based on your calculations of the current and quick ratios.  Are there any factors that could be erroneously influencing the results of the ratios?  Discuss liquidity issues of competitive companies within the same industry.  
Recommendation Based on your analysis would you recommend an individual invest in this company?  What strengths do you see?  What risks do you see?  It is perfectly acceptable to state that you would recommend avoiding this company as long as you provide support for your position. 
Writing the Final Paper 1.   Must be five to seven double-spaced pages in length, and formatted according to APA style as outlined in the Ashford Writing Center. 2.   Must include a title page with the following:

a.   Title of paper b.   Student’s name c.   Course name and number d.   Instructor’s name e.   Date submitted

3.   Must begin with an introductory paragraph that has a succinct thesis statement. 4.   Must address the topic of the paper with critical thought. 5.   Must end with a conclusion that reaffirms your thesis. 6.   Must document all sources in APA style, as outlined in the Ashford Writing Center. 7.   Must include a separate reference page, formatted according to APA style as outlined in the Ashford Writing Center.

  

A

Week Five Exercise Assignment

Financial Ratios

1. Liquidity ratios.
Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:

Edison

Stagg

Thornton

Cash

$4,000

$2,500

$1,000

Short-term investments

3,000

2,500

2,000

Accounts receivable

2,000

2,500

3,000

Inventory

1,000

2,500

4,000

Prepaid expenses

800

800

800

Accounts payable

200

200

200

Notes payable: short-term

3,100

3,100

3,100

Accrued payables

300

300

300

Long-term liabilities

3,800

3,800

3,800

a. Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most liquid? Why?

2. Computation and evaluation of activity ratios.
The following data relate to Alaska Products, Inc:

20X5

20X4

Net credit sales

$832,000

$760,000

Cost of goods sold

440,000

350,000

Cash, Dec. 31

125,000

110,000

Average Accounts receivable

180,000

140,000

Average Inventory

70,000

50,000

Accounts payable, Dec. 31

115,000

108,000

a. Compute the accounts receivable and inventory turnover ratios for 20X5. Alaska rounds all calculations to two decimal places.

3. Profitability ratios, trading on the equity.
Digital Relay has both preferred and common stock outstanding. The company reported the following information for 20X7:

Net sales

$1,500,000

Interest expense

$120,000

Income tax expense

$80,000

Preferred dividends

$25,000

Net income

$130,000

Average assets

$1,100,000

Average common stockholders’ equity

$400,000

a. Compute the profit margin ratio, the return on equity and the return on assets, rounding calculations to two decimal places.

b. Does the firm have positive or negative financial leverage? Briefly explain.

4. Horizontal analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow.

20X2

20X1

Current Assets

$76,000

$80,000

Property, Plant, and Equipment (net)

99,000

90,000

Intangibles

25,000

50,000

Current Liabilities

40,800

48,000

Long-Term Liabilities

143,000

160,000

Stockholders’ Equity

16,200

12,000

Net Sales

500,000

500,000

Cost of Goods Sold

332,500

350,000

Operating Expenses

93,500

85,000

Prepare a horizontal analysis for 20X1 and 20X2. Briefly comment on the results of your work.

5. Vertical analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow.

20X2

20X1

Current Assets

$ 76,000

$ 80,000

Property, Plant, and Equipment (net)

99,000

90,000

Intangibles

25,000

50,000

Current Liabilities

40,800

48,000

Long-Term Liabilities

143,000

160,000

Stockholders’ Equity

16,200

12,000

Net Sales

500,000

500,000

Cost of Goods Sold

332,500

350,000

Operating Expenses

93,500

85,000

Prepare a vertical analysis for 20X1 and 20X2. Briefly comment on the results of your work.

6. Ratio computation. The financial statements of the Lone Pine Company follow.

LONE PINE COMPANY

Comparative Balance Sheets

December 31, 20X2 and 20X1 ($000 Omitted)

20X2

20X1

Assets

Current Assets

Cash and Short-Term Investments

$ 400

$ 600

Accounts Receivable (net)

3,000

2,400

Inventories

2,000

2,200

Total Current Assets

$5,400

$5,200

Property, Plant, and Equipment

Land

$1,700

$ 600

Buildings and Equipment (net)

1,500

1,000

Total Property, Plant, and Equipment

$3,200

$1,600

Total Assets

$8,600

$6,800

Liabilities and Stockholders’ Equity

Current Liabilities

Accounts Payable

$1,800

$1,700

Notes Payable

1,100

1,900

Total Current Liabilities

$2,900

$3,600

Long-Term Liabilities

Bonds Payable

4,100

2,100

Total Liabilities

$7,000

$5,700

Stockholders’ Equity

Common Stock

$ 200

$ 200

Retained Earnings

1,400

900

Total Stockholders’ Equity

$1,600

$1,100

Total Liabilities and Stockholders’ Equity

$8,600

$6,800

LONE PINE COMPANY

Statement of Income and Retained Earnings

For the Year Ending December 31,20X2 ($000 Omitted)

Net Sales*

$36,000

Less: Cost of Goods Sold

$20,000

Selling Expense

6,000

Administrative Expense

4,000

Interest Expense

400

Income Tax Expense

2,000

32,400

Net Income

$ 3,600

Retained Earnings, Jan. 1

900

$ 4,500

Cash Dividends Declared and Paid

3,100

Retained Earnings, Dec. 31

$ 1,400

*All sales are on account.

Instructions

Compute the following items for Lone Pine Company for 20X2, rounding all calculations to two decimal places when necessary:

a. Quick ratio

b. Current ratio

c. Inventory-turnover ratio

d. Accounts-receivable-turnover ratio

e. Return-on-assets ratio

f. Net-profit-margin ratio

g. Return-on-common-stockholders’ equity

h. Debt-to-total assets

i. Number of times that interest is earned

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