Exam 5: Using Financial Statement Information

Use the information that follows taken from Carter Company's financial statements for the years ending December 31, 2017 and 2016. Balance Sheet Information 2017 2016 Assets Cash \ 70 \ 80 Accounts receivable 40 40 Inventory 40 60 Land, building, and equipment Total Assets \ \ Liabilities and Shareholders' Equity Accounts payable \ 95 \ 245 Common stock 210 210 Retained earnings 135 35 Total Liabilities \& Shareholders' Equity $\begin{array}{lr}\text { Income Statement Information }\\\text { Sales (all sales are on credit) } & \$ 900 \\\text { Cost of goods sold } & \underline{300} \\\text { Gross profit } & {\$600}\\\text { Operating expenses } & \underline{ 500} \\\text { Net income } & \underline{ \$(100)} \end{array}$ If the industry in which Carter is a member has an inventory turnover of 11 times, determine if in 2017, Carter is more or less efficient at converting inventory into sold units than the average firm in its industry. Explain what information this ratio provides you.

Walker Company has the following assets on January 1, 2017 and January 1, 2016. 1/1/17 1/1/16 Cash \ 451,000 \ 366,000 Accounts receivable 302,000 333,000 Marketable securities 36,000 30,000 Irventory 87,000 105,000 Net plant and equipment 120,000 96,000 If Walker's quick ratio is 3.00 for 2017, what is the amount of its current liabilities?

The use of financial statements for predicting future earnings and cash flows is limited due to

Use the information that follows taken from Tyler Company's financial statements for the years ending December 31, 2017 and 2016. Balance Sheet Information 2017 2016 Assets Cash \ 90 \5 0 Accounts receivable 60 80 Inventory 40 80 Land, building, and equipment Total Assets Liabilities and Shareholders' Equity Accounts payable \ 5 \ 85 Common stock 260 260 Retained earnings Total Liabilities \& Shareholders' Equity \ \ Income Statement Information Sale revenue \8 50 Cost of goods sold Gross profit \2 50 Operating expenses Net income The industry in which Tyler operates has an average current ratio of 2.1 on December 31, 2017. Comment on Tyler's solvency compared to the industry average as measured by its current ratio.

Use the information that follows taken from Tyler Company's financial statements for the years ending December 31, 2017 and 2016. Balance Sheet Information 2017 2016 Assets Cash \ 90 \5 0 Accounts receivable 60 80 Inventory 40 80 Land, building, and equipment Total Assets Liabilities and Shareholders' Equity Accounts payable \ 5 \ 85 Common stock 260 260 Retained earnings Total Liabilities \& Shareholders' Equity \ \ Income Statement Information Sale revenue \8 50 Cost of goods sold Gross profit \2 50 Operating expenses Net income The industry in which Tyler is a member has an average return on equity of 10%. For 2017, determine how Tyler compares.

Use the information that follows taken from Campbell Company's financial statements for the years ending December 31, 2017 and 2016. Balance Sheet Information 2017 2016 Assets Cash \ 25 \ 50 Accounts receivable 60 70 Inventory 40 30 Land, building, and equipment Total Assets \ \ Liabilities and Shareholders' Equity Accounts payable \ 85 \ 100 Long term note payable 180 200 Common stock 150 150 Retained earnings Total Liabilities \& Shareholders' Equity $\begin{array}{lr}\text { Income Statement Information }\\\text { Sales (all sales are on credit) } & \$ 850 \\\text { Cost of goods sold } & \underline{425} \\\text { Gross profit } & {425}\\\text { Operating expenses } & \underline{ 440} \\\text { Net income } &\$(15) \end{array}$ Calculate Campbell's debt to equity ratio as of December 31, 2017. Also assume that in Campbell's industry, the industry average debt to equity ratio is 2.75 as of December 31, 2017.

The primary measure of the overall success of a company is

Liquidity is the ability

Managers that structure financing transactions and choose accounting methods that exclude debt on the company's balance sheet are using

Use the information that follows taken from Tyler Company's financial statements for the years ending December 31, 2017 and 2016. Balance Sheet Information 2017 2016 Assets Cash \ 90 \5 0 Accounts receivable 60 80 Inventory 40 80 Land, building, and equipment Total Assets Liabilities and Shareholders' Equity Accounts payable \ 5 \ 85 Common stock 260 260 Retained earnings Total Liabilities \& Shareholders' Equity \ \ Income Statement Information Sale revenue \8 50 Cost of goods sold Gross profit \2 50 Operating expenses Net income If the industry in which Tyler is a member has an inventory turnover of 9 times, determine if Tyler is more or less efficient at converting inventory into sales than the average firm in its industry during 2017.

Use the information that follows taken from Campbell Company's financial statements for the years ending December 31, 2017 and 2016. Balance Sheet Information 2017 2016 Assets Cash \ 25 \ 50 Accounts receivable 60 70 Inventory 40 30 Land, building, and equipment Total Assets \ \ Liabilities and Shareholders' Equity Accounts payable \ 85 \ 100 Long term note payable 180 200 Common stock 150 150 Retained earnings Total Liabilities \& Shareholders' Equity $\begin{array}{lr}\text { Income Statement Information }\\\text { Sales (all sales are on credit) } & \$ 850 \\\text { Cost of goods sold } & \underline{425} \\\text { Gross profit } & {425}\\\text { Operating expenses } & \underline{ 440} \\\text { Net income } &\$(15) \end{array}$ Calculate Campbell's current and quick ratios as of December 31, 2016 and December 31, 2017 and choose the correct answers below:

The dividend yield ratio helps assess the

The long-term debt ratio

Washington Company has current assets, current liabilities, and long-term liabilities of $6,000, $2,000, and $5,000, respectively at the end of 2017. How much cash can Washington use to acquire equipment and retain a current ratio of at least 3.0?

The current ratio

Assessing a company's inventory turnover helps assess the

Use the information that follows taken from Carter Company's financial statements for the years ending December 31, 2017 and 2016. Balance Sheet Information 2017 2016 Assets Cash \ 70 \ 80 Accounts receivable 40 40 Inventory 40 60 Land, building, and equipment Total Assets \ \ Liabilities and Shareholders' Equity Accounts payable \ 95 \ 245 Common stock 210 210 Retained earnings 135 35 Total Liabilities \& Shareholders' Equity $\begin{array}{lr}\text { Income Statement Information }\\\text { Sales (all sales are on credit) } & \$ 900 \\\text { Cost of goods sold } & \underline{300} \\\text { Gross profit } & {\$600}\\\text { Operating expenses } & \underline{ 500} \\\text { Net income } & \underline{ \$(100)} \end{array}$ Using the current and quick ratios, indicate whether Carter's solvency position improved or deteriorated during 2017.

Briefly describe a company with a current ratio of 0.35 and return on equity of 0.03.

Distinguish between backward-looking and forward-looking as it pertains to financial statements.