1. Financial Statement Analysis
Chapter 15
Exercises

2. Horizontal Analysis In-Class Exercise: Exercise No. Page
E Horizontal Analysis
(Use the format, as reflected on the next slide, to complete the exercise)

3. Horizontal Analysis
Exercise Page
E Horizontal Analysis

4. Horizontal Analysis Exercise E15-15:
Data for Mariner Designs, Inc. follow:
Net Sales Revenue……..…………….$431, $372,350
Expenses: Cost of Goods Sold.……………… 200, , Selling and Admin. Expenses… , , Other Expenses…………………… , , Total Expenses…………………….$307, $285,450
Net Income…………………………….$123, $ 86,900
Requirements: (1) Prepare a horizontal analysis of the comparative income statement. Round percentage changes to one decimal place. (2) Why did 2015 net income increase by a higher percentage that net sales revenue?

5. Horizontal Analysis
$431, $372,350 = $58,650

6. Horizontal Analysis
$58,650 ÷ $372,350 = 15.8%

7. Horizontal Analysis

8. Horizontal Analysis
End of Exercise

9. Trend Analysis In-Class Exercise: Exercise No. Page
E Trend Analysis
(Use the format, as reflected on the next slide, to complete the exercise)

10. Trend Analysis 2012 is the base year. Exercise Page
E Trend Analysis

11. Trend Analysis Exercise E15-16:
Magic Oaks Realty’s net revenue and net income for the following five-year period, using 2012 as the base year, follows:
Requirements: (1) Compute trend analysis for net revenue and net income. Round to the nearest full percent. (2) Which grew faster during the period, net revenue or net income?

12. Divide all revenue items by $1,045,000
Trend Analysis
2012 is the base year.
Divide all revenue items by $1,045,000

13. Trend Analysis
2012 is the base year.
$1,045,000 ÷ $1,045,000 = 100%

14. Trend Analysis
2012 is the base year.
$1,011,000 ÷ $1,045,000 = 97%

15. Trend Analysis 2012 is the base year.
Completed revenue trend analysis.

16. Divide all income items by $83,000
Trend Analysis
2012 is the base year.
Divide all income items by $83,000

17. Trend Analysis
2012 is the base year.
$83,000 ÷ $83,000 = 100%

18. Trend Analysis
2012 is the base year.
$72,000 ÷ $83,000 = 87%

19. Trend Analysis
2012 is the base year.
Completed income trend analysis.

20. Trend Analysis
End of Exercise

21. Vertical Analysis In-Class Exercise: Exercise No. Page
E Comparative Balance Sheet
(Use the format, as reflected on the next slide, to complete the exercise)

22. Express each item as a percent of Total Assets for each year
Vertical Analysis
Express each item as a percent of Total Assets for each year

23. Vertical Analysis
$42,750 ÷ $285,000 = 15.0%

24. Vertical Analysis
$59,000 ÷ $309,500 = 19.1%

25. Vertical Analysis

26. Vertical Analysis
End of Exercise

27. Ratio Analysis In-Class Exercise: Exercise No. Page
E Computing Key Ratios

28. Ratio Analysis Exercise E15-20:
The financial statements of Victor’s Natural Foods include the following items:
Current Year Preceding Year Balance Sheet: Cash………………………………… $ 15, $ 20,000 Short-Term Investments.……… , ,000 Accounts Receivable, net……… , ,000 Merchandise Inventory..………… , ,000 Prepaid Expenses……………… , ,000 Total Current Assets…………….. $172, $198,000 Total Current Liabilities.………… $133, $ 93,000 Income Statement: Net Credit Sales……………..…… $462, Cost of Goods Sold…………..… ,000
Compute the following ratios for the current year: (a) Current ratio (d) Inventory turnover (g) Days’ sales in receivables (b) Cash ratio (e) Days’ sales in inventory (h) Gross profit percentage (c) Acid-test ratio (f) Accounts receivable turnover ratio

29. Ratio Analysis Current Ratio
Total Current Assets . Total Current Liabilities
This ratio measures the short-term debt-paying ability of the company.

30. Ratio Analysis
Total Current Assets . Total Current Liabilities
This ratio measures the short-term debt-paying ability of the company.

31. Cash + Cash Equivalents . Total Current Liabilities
Ratio Analysis
Cash Ratio
Cash + Cash Equivalents . Total Current Liabilities
This ratio helps to determine a company’s ability to meet its short-term obligations.

32. Cash + Cash Equivalents . Total Current Liabilities
Ratio Analysis
Cash + Cash Equivalents . Total Current Liabilities
This ratio helps to determine a company’s ability to meet its short-term obligations.

33. Acid-Test or Quick Ratio Quick Assets . Total Current Liabilities
Ratio Analysis
Acid-Test or Quick Ratio
Quick Assets Total Current Liabilities
This ratio measures whether a company can pay all its current liabilities if they came due immediately.

34. Ratio Analysis
Quick Assets Total Current Liabilities
Quick Assets = Cash + Short-Term Investments + Net Current Receivables

35. Cost of Goods Sold . Average Mdse Inventory
Ratio Analysis
Inventory Turnover
Cost of Goods Sold Average Mdse Inventory
This ratio measures the number of times a company sells its average level of merchandise inventory during a year.

36. Cost of Goods Sold . Average Mdse Inventory
Ratio Analysis
Cost of Goods Sold Average Mdse Inventory
This ratio measures the number of times a company sells its average level of merchandise inventory during a year.

37. Days’ Sales in Inventory
Ratio Analysis
Days’ Sales in Inventory
Inventory Turnover
This ratio measures the average number of days merchandise inventory is held by the company.

38. Ratio Analysis
Inventory Turnover
This ratio measures the average number of days merchandise inventory is held by the company.

39. Ratio Analysis Accounts Receivable Turnover Ratio
Net Credit Sales Average Net Accounts Receivable
This ratio measures the number of times the company collects the average receivables balance in a year.

40. Net Credit Sales . Average Net Accounts Receivable
Ratio Analysis
Net Credit Sales Average Net Accounts Receivable
This ratio measures the number of times the company collects the average receivables balance in a year.

41. Days’ Sales in Receivables 365 . Accounts Receivable Turnover
Ratio Analysis
Days’ Sales in Receivables
Accounts Receivable Turnover
This ratio indicates how many days it takes to collect the average level of receivables.

42. 365 . Accounts Receivable Turnover
Ratio Analysis
Accounts Receivable Turnover
This ratio indicates how many days it takes to collect the average level of receivables.

43. Gross Profit Percentage Gross Profit . Net Sales Revenue
Ratio Analysis
Gross Profit Percentage
Gross Profit Net Sales Revenue
Measures the profitability of each net sales dollar above the cost of goods sold.

44. Gross Profit . Net Sales Revenue
Ratio Analysis
32%
Gross Profit Net Sales Revenue
Measures the profitability of each net sales dollar above the cost of goods sold.

45. Ratio Analysis
End of Exercise