S15.docx - S15-1 Caleb should complete a review of the...

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S15-1 Caleb should complete a review of the company’s performance across several periods of time. The horizontal analysis, vertical analysis, and standard financial ratios should be completed for the company. They should be compared from year to year with a competing company and with the same industry as a whole. He should also review the auditor’s opinion, management’s discussion and analysis of financial conditions and operations, and notes to financial statements in the annual report. S15-2 Increase (Decrease) ( Amounts in millions ) 2017 2016 2017 2016 2015 Amount Percent Amount Percent Revenues $9,910 $9,700 $9,210 $210 2.2% $490 5.3% Cost of Goods Sold 7,210 6,900 6,125 Gross profit $2,700 $2,800 $3,0855 $(100) (3.6)% $(285) (9.2)%
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S15-3 Requirement 1 2017 2016 2015 2014 Revenue $ 9,990 $ 9,890 $ 9,290 $ 9,090 Trend Percentages 110% 109% 102% 100% Net Income $7,750 $7,570 $5,670 $4,990 Trend Percentages 155% 152% 114% 100% Requirement 2 Net income increased faster than revenue during 2015 – 2017. S15-4 2016 2015 Amount Percent Amount Percent Cash and Receivables $ 77,825 28.3% $ 70,200 27.0% Merchandise Inventory 55,825 20.3 52,780 20.3 Property, Plant and Equipment, Net 141,350 51.4 137,020 52.7 Total Assets $ 275,000 100.0% $260,000 100.0%
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S15-5 Requirement 1 Martinez Rosario Net Sales 100.0% 100.0% Cost of Goods Sold 62.1 72.7 Other Expense 31.8 22.5 Net Income 6.1% 4.8% Requirement 2 Rosario earns more net income. Requirement 3 Martinez has a higher net income as a percentage of net sales. S15-6 Requirement 1 Current ratio = Total current assets Total current liabilities 2016: $51,500,000 = 2.15 $24,000,000 2015: $27,200,000 = 2.11 $12,900,000 Requirement 2 Shine’s Companies’ current ratio improved from 2015 to 2016.
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S15-7 Requirement 1 Inventory turnover = Cost of goods sold Average merchandise inventory 2016: $20,600,000 = [($8,200,000 + $7,100,000) / 2] $20,600,000 = 2.69 $7,650,000 Days’ sales in inventory = 365 days Inventory turnover 2016: 365 days = 136 days 2.69 Gross profit percentage = Gross profit Net sales revenue 2016: ($50,200,000 – 28,400,000) = $50,200,000 $21,800,000 $50,200,000 = 0.434 = 43.4%
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S15-7, cont. Requirement 2 Accounts receivable turnover ratio = Net credit sales Average net accounts receivables 2015: $57,200,000 = [($5,400,000 + $7,200,000) / 2] $57,200,000 $6,300,000 = 9.08 Days’ Sales in Receivables = 365 days Accounts receivable turnover ratio 2015: 365 days = 40 days 9.08 Requirement 3 Shine’s Companies’ have a high amount of inventory on hand and a low inventory turnover ratio. This could be an area to look at and compare to the prior year and industry average. They have a high gross profit percentage, which is a good indicator. The amount of time it takes to collect receivables seems high, but this would depend on the credit terms. S15-8 Requirement 1 Debt ratio = Total liabilities Total assets 2016: $37,400,000 = 0.448 = 44.8% $83,500,000 Debt to equity ratio = Total liabilities Total equity 2016: $37,400,000 = .81 $46,100,000
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S15-8, cont. Requirement 2 Shine’s debt ratio and debt to equity ratio are not very high, which indicates it’s in a strong position to pay its liabilities. S15-9 Requirement 1 Profit margin ratio = Net income Net sales 2016: $29,000,000 = 0.507 = 50.7% $57,200,000 Requirement 2 Rate of return on total assets = Net income + Interest expense Average total assets 2016: ($29,000,000 + $700,000) = [($55,200,000 + $83,500,000) / 2] $29,700,000 69,350,000 = 0.428 = 42.8% Requirement 3 Asset turnover ratio = Net sales Average total assets 2016: $57,200,000 = [($55,200,000 + $83,500,000) / 2] $57,200,000 69,350,000 = .825 times
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S15-9, cont.
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