PROBLEM112:EquityValuation
Ace Co. is to be taken over by Beta Ltd. at the end of year 2007. Beta agrees to pay
the share holders of Ace the book value per share at the time of the takeover. A
reliable analyst makes the following projections for Ace (assu

13. Describe the different types of business analysis. Identify the category of
users of financial statements that applies to each different type of business
analysis.
Solution:
3. Some major types of business analysis include credit analysis, equity anal

EXERCISE13:
EvaluatingShortTermLiquidity
Mixon Companys year-end balance sheets show the following:
Required:
Compare the year-end short-term liquidity position of this company at the end of
2006, 2005, and 2004 by computing the: (a) current ratio and (b)

EXERCISE110:AnalyzingShortTermFinancial
Conditions
Huff Company and Mesa Company are similar firms that operate in the same
industry. The following information is available:
Write a one-half page report comparing Huff and Mesa using the available
informat

PROBLEM14:IndexNumberTrendAnalysis
Compute increases (decreases) in percents for both Years 6 and 7 by entering all the
missing data in the table below. Analyze and interpret any significant results
revealed from this trend analysis.
CHECK
Year 6 net inco

PROBLEM11:AnalyzingEfficiencyandFinancial
Leverage
Kampa Company and Arbor Company are similar firms that operate in the same
industry. Arbor began operations in 2001 and Kampa in 1995. In 2006, both
companies pay 7% interest on their debt to creditors. T

EXERCISE115:ResidualIncomeEquityValuation
On January 1, Year 1, you are considering the purchase of Nico Enterprises
common stock. Based on your analysis of Nico Enterprises, you determine the
following:
1.
Book value at January 1, Year 1, is $50 per shar

EXERCISE111:
ComputingTrendPercents
Compute index-number trend percents for the following accounts, using Year 1 as
the base year. State whether the situation as revealed by the trends appears to be
favorable or unfavorable.
Solutions
The trend in sales i

PROBLEM13:ComparativeIncomeStatement
Analysis
Perform a comparative analysis of Eastman Corporation by completing the analysis
below. Describe and comment on any significant findings in your comparative
analysis.
Solutions
Part 2
The statements and the tr

110. Identify and discuss the four major activities of a business enterprise.
Solution:
10. A business pursues four major activities in a desire to provide a saleable product and/or
service and to yield a satisfactory return on investment. These activitie

114. Identify at least seven additional sources of financial reporting
information (beyond financial statements) that are useful for analysis.
Solution:
14. Financial statements are not the sole output of the financial reporting system. Additional
financi

112. Identify and discuss the four primary financial statements of a business.
Solution:
12. The four primary financial statements are the balance sheet, the income statement, the
statement of shareholders (owners) equity, and the statement of cash flows.

125. Identify and describe limitations of ratio analysis.
Solution:
25. Since not all relations have meaning and not all ratios are useful for all analytical purposes,
the analyst must be careful in selecting ratios that are useful for the particular task

133. Discuss implications of the efficient market hypothesis (EMH) for
financial statement analysis.
Solution:
33. The EMH is dependent on the assumption that competent and well-informed analysts, using
tools of analysis, continually evaluate and act on t

123. Common-size analysis is an important tool in financial analysis.
a. Describe a common-size financial statement. Explain how one is prepared.
b. Explain what a common-size financial statement report communicates
about a company.
Solution:
23. a. Commo

EXERCISE16:EvaluatingRiskandCapitalStructure
Refer to the information in Exercises 13 and 15 about Mixon Company. Compare
the long-term risk and capital structure positions of the company at the end of 2006
and 2005 by computing the following ratios: (a)

EXERCISE17:EvaluatingEfficiencyandProfitability
Refer to the financial statements of Mixon Company in Exercises 13 and 15.
Evaluate the efficiency and profitability of the company by computing the
following: (a) net profit margin, (b) total asset turnover

EXERCISE19:DeterminingIncomeEffectsfrom
CommonSizeandTrendPercents
Common-size and trend percents for JBC Companys sales, cost of goods sold, and
expenses follow:
Determine whether net income increased, decreased, or remained unchanged in this
three-year

EXERCISE15:
EvaluatingShortTermLiquidity
Refer to the information in Exercise 13 about Mixon Company. The companys
income statements for the years ended December 31, 2006 and 2005 show the
following:
Required: For the years ended December 31, 2006 and 200

EXERCISE114:ValuationofBonds(semiannual
interest)
On January 1, Year 1, you are considering the purchase of $10,000 of Colin
Companys 8% bonds. The bonds are due in 10 years, with interest payable
semiannually on June 30 and effective December 31. Based o

EXERCISE113:DebtValuation(annualinterest)
Compute the present value for each of the following bonds:
a.
Priced at the end of its fifth year, a 10-year bond with a face value of $100
and a contract (coupon) rate of 10% per annum (payable at the end of each

PROBLEM16:UnderstandingFinancialStatement
Relations:BalanceSheetConstruction
You are an analyst reviewing Foxx Company. The following data are available for
your financial analysis (unless otherwise indicated, all data are as of December 31,
Year 2):
Requ

PROBLEM110: IdentifyingIndustriesfrom
FinancialStatementData
Selected ratios for three different companies that operate in three different industries
(merchandising, pharmaceuticals, utilities) are reported in the table below:
Required:
Identify the indus

PROBLEM15:UnderstandingFinancialStatement
Relations:BalanceSheetConstruction
Assume you are an analyst evaluating Mesco Company. The following data are
available in your financial analysis (unless otherwise indicated, all data are as of
December 31, Year

PROBLEM17:UnderstandingFinancialStatement
Relations:DividendandBalanceSheetConstruction
You are planning to analyze Voltek Companys December 31, Year 6, balance sheet.
The following information is available:
1.
Beginning and ending balances are identical

PROBLEM12:CalculationandAnalysisofTrend
Percents
Selected comparative financial statements of Cohorn Company follow:
Required:
a.
Compute trend percents for the individual items of both statements using
2000 as the base year.
b.
Analyze and comment on the

PROBLEM111:RatioInterpretationIndustry
Comparisons
The Tristar Mutual Fund manager is considering an investment in the stock of Best
Computer and asks for your opinion regarding the company. Best Computer is a
computer hardware sales and service company.

PROBLEM18:FinancialStatementRatioAnalysis
The balance sheet and income statement for Chico Electronics are reproduced
below (tax rate is 40%).
Required: Compute and interpret the following financial ratios of the company for
Year 5:
a.
Acid-test ratio.
b.

PROBLEM19:FinancialStatementRatioComputation
andInterpretation
As a consultant to MCR Company, you are told it is considering the acquisition of
Lakeland Corporation. MCR Company requests that you prepare certain financial
statistics and analysis for Year