《财务会计英文版课后习题答案Ch14.pdf》由会员分享，可在线阅读，更多相关《财务会计英文版课后习题答案Ch14.pdf（48页珍藏版）》请在taowenge.com淘文阁网|工程机械CAD图纸|机械工程制图|CAD装配图下载|SolidWorks_CaTia_CAD_UG_PROE_设计图分享下载上搜索。
1、CHAPTER 14DISCUSSION QUESTIONS1,One purpose of financial statement analysisis to evaluate the performance of a companywith an eye toward identifying problem areas.Another purpose of financial statement analysis is to use the past performance of acompany to predict how it will do in the future.2.Disa
2、gree.An analysis of a compan/s financial ratios usually does not provide detailedinformation about what the causes of acompan/s problems are,but it does identifyareas in which more detailed data should begathered.3.The usefulness of financial ratios is greatlyenhanced when they are compared withpast
3、 values for the same company and withvalues for other firms in the same industry.4.Current ratio is a measure of a compan/sliquidity,which is the compan/s ability topay its debts in the short run.5.It is impossible to tell whether Company Asreturn on sales of 6%is high or low.The return on sales val
4、ue must be analyzed in lightof the appropriate industry.For example,anormal return on sales for supermarkets isaround 1%or 2%,whereas the return onsales for a high-tech company such as Microsoft can be in excess of 20%.6.The price-earnings ratio differs from mostother financial ratios in that it is
5、not the ratioof two financial statement numbers.Instead,the PE ratio is a comparison of a financialstatement number to a market value number.7.A common-size financial statement is a financial statement with all numbers for a given year divided by sales for the year.Thus,all amounts for a given year
6、are shown as apercentage of sales for that year.Commonsize financial statements make it possible tomake comparisons even when the size ofcompanies is different.In addition,commonsize financial statements allow comparisonof a compan/s numbers to equivalent numbers in prior years when the sales level
7、mayhave been much different.8.If an analysis of common-size financialstatements suggests that a company hasproblems,the way to find out what is causing these problems is to gather informationfrom outside the financial statementsaskmanagement,read press releases,talk to financial analysts who follow
8、the firm,read industry newsletters,and dig into the notes tothe financial statements.9.The most informative section of thecommon-size balance sheet is the assetsection.This section can be used to determine how efficiently a company is using itsassets.10.The DuPont framework provides a systematic app
9、roach to identifying general factorscausing ROE to deviate from normal.TheDuPont system also provides a frameworkfor computation of financial ratios to yieldmore in-depth analysis of a compan/s areasof strength and weakness.11.With the DuPont framework,ROE isdecomposed into three componentsprofitabi
10、lity,efficiency,and leverage.The ratios summarizing a compan/s performancein each area are as follows:Profitability.Return on sales=Netincome/Sales Efficiency:Asset turnover=Sales/Assets Leverage:Assets-to-equity ratio=Assets/Equity12.If a DuPont analysis suggests problems inany of the three ROE com
11、ponents,furtherratios,specific to each area,can be computed to shed more light on the exact natureof the problem.For example,a commonsize income statement can shed further lighton the cause of a profitability problem.13.The inventory turnover ratio indicates howlong inventory is being held before it
12、 is sold.Holding other things constant,the inventory550Chapter 14turnover ratio can provide a preliminary indication of how well the organization is managing its inventory.14.Fixed asset turnover is computed as salesdivided by average property,plant,andequipment(fixed assets)and is interpretedas the
13、 number of dollars in sales generatedby each dollar of fixed assets.15.The debt-to-equity ratio is calculated bydividing total liabilities by total equity.It reflects the amount of a compan/s borrowingrelative to its stockholder investment.16.From the standpoint of a lender,a hightimes interest earn
14、ed ratio is more attractivethan a low times interest earned ratio.Themagnitude of the times interest earned ratioindicates how much cushion a company hasin making its interest payments;the higherthe ratio,the less likely the company will beunable to make its interest payments.17.The requirement that
15、 companies provide acash flow statement is relatively recent.Because of this,cash flow ratios often do notget the emphasis they deserve in financialanalysis models.18.Accrual accounting involves making assumptions in order to adjust the raw cashflow data into a better measure of economicperformance
16、called net income.For companies entering phases where it is critical thatreported earnings look good,such as a firmthat is preparing to make an application for alarge loan,those accounting assumptionsand adjustments can be stretched.Accordingly,cash flow from operations,which isnot impacted by accru
17、al assumptions,provides an excellent reality check for reportedearnings.19.When the value of a compan/s cash flowadequacy ratio is less than one,that company is not generating enough cash fromoperations to pay for all new plant andequipment purchases.Accordingly,thecompany has no cash left over to r
18、epayloans or to distribute to investors.20.Comparability among financial statements isreduced when companies classify itemsdifferently in the financial statements andwhen companies use different accountingpractices.In addition,when a company iscomposed of a variety of divisions,each operating in a d
19、ifferent line of business,it isdifficult to find appropriate industry comparison values with which to benchmark thecompany*s ratios.21.One danger in focusing a financial analysissolely on the data found in the historicalfinancial statements is that one might thentend to focus on the compan/s past pe
20、rformance and ignore current year information.Chapter 14551PRACTICE EXERCISESPE 14-1(L01)What Is a Financial Ratio?The correct answer is B.PE 14-2(L01)U sefulness of Financial RatiosThe correct answer is C.PE 14-3(LO2)Financial Ratios DefinedDebt ratio=Total liabilitiesTotal assetsCurrent ratio=Curr
21、ent assetsCurrent liabilitiesReturn on sales=Net incomeSalesAsset turnover=SalesTotal assetsReturn on equity=Net incomeStockholders equityPrice-earnings ratio=Market value of sharesNet incomePE 14-1(LO2)Debt RatioDebt ratio:Total liabilitiesTotal assets($2,400+$5,700+$1,700+$32,000)($2,100+$6,750+$4
22、,100+$14,000+$65,000)=45.5%PE 14-5(LO2)Current RatioCurrent ratio:Current assetsCurrent liabilities_($2,100+$6,750+$4,100)($2,400+$5,700+$1,700)=1.32552Chapter 14PE14-6(LO2)Return on SalesReturn on sales:Net incomeSales$9,000$86,000=10.5%PE 14-7(LO2)Asset TurnoverAsset turnover:SalesTotal assets_$86
23、,000_($2,100+$6,750+$4,100+$14,000+$65,000)=0.9 4PE14-8(LO2)Return on EquityReturn on equity:Net incomeStockholders equity$9,000-$50,150=17.9%PE 14-9(LO2)Price-Earnings RatioMarket value of equity$103,000PE ra tio:-=-Net income$9,000=11.4PE 14-10(LO3)Common-Size Income StatementSales.Cost of goods s
24、old.Gross profit.$75,00040,000$35,000Operating expenses:Sales and marketing.$3,000General and administrative.8,000Total operating expenses.Operating income.Interest expense.Income before income taxes.Income tax expense.Net income.11,000$24,0004,000$20,0003,500$16.500100.0%53.346.7%4.0%10.714.732.0%5
25、.326.7%4.722.0%Chapter 14553PE 14-11(L03)Comparative Common-Size Income Statements1.Year 2Year 1Sales.$100,000100.0%$80,000100.0%Cost of goods sold.70,00070.050,00062.5Gross profit.$30,00030.0%$30,00037.5%Ooeratina expenses.25,00025.020,00025.0Operating income.$5,0005.0%$10,00012.5%Interest expense.
26、2,0002.02.0002.5Income before income taxes.$3,0003.0%$8,00010.0%Income tax expense.1,2001.22,4003.0Net income.$1.8001.8%$5.6007.0%2.The biggest reason for the decline in the return on sales from 7.0%in Year 1 to1.8%in Year 2 is the decline in the gross profit as a percentage of sales,from37.5%in Yea
27、r 1 to 30.0%in Year 2.Interest expense as a percentage of salesactually declined in Year 2;it appears that the company was able to increaseits sales(from$80,000 to$100,000)without borrowing any additional money.Income tax expense as a percentage of sales also declined in Year 2,but thisnews is not a
28、s good as it first appears.The reason that income tax expense isdown is that income before income taxes is down.You may note that the income tax rate(income tax expense divided by income before income taxes)actually increases in Year 2from 30%in Year 1 ($2,400/$8,000)to 40%in Year 2($1,200/$3,000).P
29、E 14-12(LO3)Common-Size Balance SheetAssetsCurrent assets:Cash.$4,800 6.4%Accounts receivable.9,300 12.4Inventory.6.000 8.0Total current assets.$20,100 26.8%Property,plant,and equipment(net).33,000 44.0Goodwill.5,700 7.6Total assets.$58.800 78.4%554Chapter 14PE 14-12(L03)(Concluded)Liabilities and s
30、tockholders equityCurrent liabilities:Accounts payable.$7,200 9.6%U nearned revenue.3.800 5.1Total current liabilities.$11,000 14.7%Long-term debt.18,000 24.0Total liabilities.$29,000 38.7%Capital stock.15,000 20.0Retained earnings.14,800 19.7Total liabilities and stockholders equity.$58.800 78.4%PE
31、 14-13(LO3)Common-Size Balance Sheet Standardized U sing Total AssetsAssetsCurrent assets:Cash.$4,800 8.2%Accounts receivable.9,300 15.8Inventory.6.000 10.2Total current assets.$20,100 34.2%Property,plant,and equipment(net).33,000 56.1Goodwill.5,700 9.7Total assets.$58.800 100.0%Liabilities and stoc
32、kholders equityCurrent liabilities:Accounts payable.$7,200 12.2%U nearned revenue.3,800 6.5Total current liabilities.$11,000 18.7%Long-term debt.18,000 30.6Total liabilities.$29,000 49.3%Capital stock.15,000 25.5Retained earnings.14,800 25.2Total liabilities and stockholders equity.$58.800 100.0%Cha
33、pter 14555PE 14-14(L03)Comparative Common-Size Balance Sheets1.Assets Year 2 Year 1Cash.$4,0004.0%$3,2004.0%Accounts receivable.8,0008.06,4008.0Inventory.17,00017.015,00018.8Property,plant,and equipment(net).25,00025.025.00031.3Total assets.$54.0005Q%$49.60062.0%*Liabilities and stockholders equityA
34、ccounts payable.$9,0009.0%$7,2009.0%Long-term debt.20,00020.020,00025.0Total liabilities.$29,00029.0%$27,20034.0%Capital stock.15,00015.015,00018.8Retained earnings.10,00010.07,4009.3Total liabilities and stockholdersequity.$54.0005Q%$49.60062.0%*Difference due to rounding.2.The company is managing
35、its cash and accounts receivable in the same wayin Year 2 as it did in Year 1;we can deduce this because these assets,as apercentage of sales,are the same in both years.The procedures for managingaccounts payable also appear to be the same in both years.Inventory management is more efficient in Year
36、 2 as evidenced by the fact that inventory,asa percentage of sales,decreased from 18.8%to 17.0%.The company is alsousing its property,plant,and equipment(PPE)more efficiently;PPE as a percentage of sales decreased from 31.3%to 25.0%,The company was able to increase sales from$80,000 to$100,000 witho
37、ut a net increase in PPE.Longterm debt and capital stock as a percentage of sales both decreased becausethe company was able to increase sales without receiving any additional external financing.PE 14-15(LO4)DuPont Framework Defined1.Return on equity=Profitability=Return on salesNet income Salesx Ef
38、ficiency x Leveragex Asset turnover x Assets-to-equity ratioSales AssetsX X _ .Assets Equity556Chapter 14PE 14-15(L04)(Concluded)2.a.Return on sales is the number of pennies in profit generated from each dollar of sales.b.Asset turnover is the number of dollars in sales generated by each dollar ofas
39、sets.c.Assets-to-equity ratio is the number of dollars of assets acquired for eachdollar invested by stockholders.PE 14-17(LO4)PE 14-16(LO4)Computation of Return on Equity U sing the DuPontFrameworkReturn on salesx Asset turnover x Assets-to-equity ratio=Return on equityYear 3:25.9%Year 2:23.4%Year
40、1:22.5%x 0.71 x 1.52=28.0%x 0.67 x 1.45=22.7%x 0.60 x 1.20=16.2%Analysis of Return on Equity U sing the DuPont FrameworkOverall,the companys return on equity increased from 16.2%in Year 1 to 28.0%inYear 3(see the solution to PE 14-16).The profitability of the company,as measured by return on sales,i
41、ncreased from Year 1 to Year 3.In Year 1,each dollar ofsales generated 23 cents of profit,and by Year 3 each dollar of sales generated 26cents of profit.In addition to profitability,efficiency,as measured by asset turnover,increased from 0.60 in Year 1 to 0.71 in Year 3.An increase in asset turnover
42、 indicates an increase in the number of dollars in sales generated by each dollar of assets;or,stated differently,the company is using its assets more efficiently to generate sales.The companys leverage,as measured by the assets-to-equity ratio,also increased from 1.20 in Year 1 to 1.52 in Year 3,me
43、aning that by Year 3 the company had put into use$1.52 in assets for every dollar invested by stockholders.Ofcourse,these observations indicate only the areas in which to ask questions withrespect to understanding the companys improvement in performance.PE 14-18(LO4)DuPont Framework ComputationsRetu
44、rn on equity=Return on salesXAsset turnoverXAssets-to-equity ratioNet incomeNet incomeSalesAssetsEquity-SalesXAssetsXEquity$17,000$17,000$190,000$120,000$70,000一$190,000$120,000$70,00024.3%=9.0%X1.58X1.71Chapter 14557PE 14-19(L04)DuPont Framework ComputationsTotal stockholders equity must be compute
45、d using the accounting equation,asfollows:Total assets$300,000-Total liabilities$120,000=Total stockholders equity$180,000Return on equity=Return on salesx Asset turnover xAssets-to-equity ratioNet incomeNet incomeSalesAssetsEquity SalesXAssetsXEquity$20,000$20,000$450,000$300,000$180,000$450,000X$3
46、00,000X$180,00011.1%=4.4%X1.50X1.67PE 14-20(LO4)DuPont Framework Intuition TestThis question can be answered by using simple arithmetic.Refer to the followingdefinition of return on equity:Return on equity=Return on salesXAsset turnoverXAssets-to-equity ratioNet incomeSalesAssets SalesXAssetsXEquity
47、Because these three ratios are multiplied together,we can combine them intothe following fraction:_(Net income x Sales x Assets)(Sales x Assets x Equity)Because the order of the items does not matter in multiplication,we can rearrange the components as follows:_ Net income x Sales x AssetsEquity x S
48、ales x AssetsAny number divided by itself equals 1,so Sales divided by Sales equals 1,andAssets divided by Assets equals 1.These numbers essentially“cancel out,leaving the following expression:Net incomeEquity558Chapter 14PE 14-21(L05)Accounts Receivable Turnover_ Sales Revenue$520,000.A/R Turnover=
49、-；-=-=10.40Average Accounts Receivable($46,000+$54,000)/2PE 14-22(LO5)Average Collection PeriodAA verage C ollection oP er.i odj =-3-6；5 -=-3-6-5-=35.1 da.ysAccounts Receivable Turnover 10.40*The accounts receivable turnover of 10.40 was calculated in PE 14-21 bydividing sales by the average account
50、s receivable.PE 14-23(LO5)Inventory TurnoverInventory Turnover=Cost of Goods Sold _$342,000Average Inventory-($74,000+$82,000)/2=4.38PE 14-24(LO5)Number of Days Sales in Inventory365 365Number of Days Sales in Inventory=-=-=83.33 daysInventory Turnover 4.38*For computation of inventory turnover,refe