Chapter 2: 28BP_b (page 84)

Quantum Moving Company has the following data. Industry information also is shown.
Company Data
Industry data on
Year
Net Income
Total Assets
Net income/Total assets
20X1
$424,000
$2,843,000
14%
20X2
428,000
3,267,000
9.8
20X3
412,000
3,834,000
3.9
Company Data
Industry data on
Year
Debts
Total Assets
Debts/Total assets
20X1
$1,722,000
$2,843,000
56.6%
20X2
1,732,000
3,267,000
42
20X3
1,950,000
3,834,000
38
As an industry analyst comparing the firm to the industry, are you likely to praise
or criticize the firm in terms of the following?
b) Debt/Total assets.

Short Answer

Expert verified

While the company’s debt ratio is improving, but it is not improving as rapid as the industry’s ratio. Criticism is appropriate in this case.

Step by step solution

Debts to total assets ratio of the company for the year ending 20X1

$\begin{array}{rcl} Debts to total asset ratio & = & \frac{Debts}{Total assets} \\ = & \frac{$ 1, 722, 000}{$ 2, 843, 000} \\ = & 60.57 % \end{array}$

Debts to total assets ratio of the company for the year ending 20X2

$\begin{array}{rcl} Debts to total asset ratio & = & \frac{Debts}{Total assets} \\ = & \frac{$ 1, 732, 000}{$ 3, 267, 000} \\ = & 53.01 % \end{array}$

Debts to Total assets ratio of the company for the year ending 20X3

$\begin{array}{rcl} Debts to total asset ratio & = & \frac{Debts}{Total assets} \\ = & \frac{$ 1, 950, 000}{$ 3, 834, 000} \\ = & 50.86 % \end{array}$

Comparison of the debts to total assets ratio between the company and the industry

Year	Company	Industry
20X1	60.57%	56.6%
20X2	53.01%	42%
20X3	50.86%	38%

The debts to total assets ratio of the company is more than the industry’s debt to assets ratio for each year. This is why the company should be criticized.

Unlock Step-by-Step Solutions & Ace Your Exams!

Full Textbook Solutions
Get detailed explanations and key concepts
Unlimited Al creation
Al flashcards, explanations, exams and more...
Ads-free access
To over 500 millions flashcards
Money-back guarantee
We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Stud Clothier
Balance sheet 20X1
Assets		Liabilities and Equity
Cash	\)60,000	Account payable	\(220,000
Account receivable	240,000	Accrued taxes	30,000
Inventory	350,000	Bonds payable (long term)	150,000
Plant and equipment	410,000	Common stock	80,000
		Paid in capital	200,000
		Retained earnings	380,000
Total assets	\)1,060,000	Total LIbilities and Equity	$1,060,000

Times mirror and glass company
Sales	\)126,000
Less: Cost of goods sold	93,000
Gross profit	\(33,000
Less: selling and administrative expenses	11,000
Lease Expenses	4,000
Operating profit*	\)18,000
Less: Interest expenses	3,000
Earning before taxes	\(15,000
Less: Taxes (30%)	4,500
Earning after taxes	\)10,500

Short Answer

Step by step solution

Debts to total assets ratio of the company for the year ending 20X1

Debts to total assets ratio of the company for the year ending 20X2

Debts to Total assets ratio of the company for the year ending 20X3

Comparison of the debts to total assets ratio between the company and the industry

One App. One Place for Learning.

Most popular questions from this chapter

Recommended explanations on Business Studies Textbooks

Business Case Studies

Financial Performance

Managers

Strategic Direction

Introduction to Business

Organizational Behavior

Study anywhere. Anytime. Across all devices.

Company Data	Industry data on
Year	Net Income	Total Assets	Net income/Total assets
20X1	\(424,000	\)2,843,000	14%
20X2	428,000	3,267,000	9.8
20X3	412,000	3,834,000	3.9