Class 3b Lecture Notes SM10

Class 3b Lecture Notes SM10 - 6/11/2010 6/11/2010 1 Click...

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6/11/2010 1 1 Click to edit Master title style Lewis University MBA 550 1 Financial Accounting Financial Statement Analysis 2 Click to edit Master title style List basic financial Objective 1 17-1 2 statement analytical procedures. 3 Click to edit Master title style 17-1 Common-Size Statements In a common-sized statements , all items are expressed as a percentage. Common-sized statements are fli i th t 3 useful in comparing the current period with prior periods, individual businesses, or one business with with industry percentages.
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6/11/2010 2 4 Click to edit Master title style 17-1 Common-Size Income Statement 4 25 5 Click to edit Master title style Apply financial Objective 2 17-2 5 statement analysis to assess the solvency of a business. 6 Click to edit Master title style 17-2 Solvency Analysis The ability of a business to meet its financial obligations (debts) is called solvency . 6 The ability of a business to earn income is called profitability .
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6/11/2010 3 7 Click to edit Master title style 17-2 Current Position Analysis Using measures to assess a business’s ability to pay its current liabilities is called 7 current position analysis . Such analysis is of special interest to short-term creditors. 8 Click to edit Master title style 17-2 Working Capital The excess of current assets of a business over its current liabilities is called working capital The 8 is called . The working capital is often used in evaluating a company’s ability to meet currently maturing debts. 9 Click to edit Master title style 17-2 Current asset: Cash $ 90,500 Marketable securities 75,000 Lincoln Company 9 32 Working capital (a Working capital (a – b) $340,000 b) Accounts receivable (net) 115,000 Inventories 264,000 Prepaid expenses 5,500 a. Total current assets $550,000 b. Current liabilities 210,000
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6/11/2010 4 10 Click to edit Master title style 17-2 Current Ratio The current ratio , sometimes called the working capital ratio or bankers’ ratio , is 10 computed by dividing the total current assets by the total current liabilities. 11 Click to edit Master title style a. Current assets $550,000 $533,000 b Current liabilitie 210 000 243 000 2008 2007 17-2 Lincoln Company 11 Current ratio (a/ Current ratio (a/b) 2.6 2.2 b) b. Current liabilities 210,000 243,000 Working capital (a – b) $340,000 $290,000 34 12 Click to edit Master title style 17-2 Quick Ratio A ratio that measures the “instant’ debt-paying ability 12 of a company is called the quick ratio or acid-test ratio .
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6/11/2010 5 13 Click to edit Master title style 17-2 2008 2007 Quick assets: Cash $9 05 0 0 $ 64 700 Lincoln Company Quick assets are cash and other current assets that can be quickly converted to cash. 13 36 Quick ratio (a/ Quick ratio (a/b) 1.3 1.0 b) $ 90,500 $ 64,700 Marketable securities 75,000 60,000 Accounts receivable (net) 115,000 120,000 a. Total quick assets $280,500 $244,700 b. Current liabilities $210,000 $243,000 14 Click to edit Master title style 17-2 Accounts Receivable Turnover The relationship between sales and accounts receivable may be stated as the accounts receivable turnover .
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This note was uploaded on 10/12/2010 for the course MBA 11111 taught by Professor Spike during the Fall '10 term at Lewis University .

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Class 3b Lecture Notes SM10 - 6/11/2010 6/11/2010 1 Click...

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