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Chapter 15: Q1RQ (page 835)
Question: What are the three main ways to analyze financial statements?
Answer
1. Horizontal analysis, 2. Vertical analysis, 3. Ratio analysis
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Question:Theater by Design and Show Cinemas are asking you to recommend their stock to your clients. Because Theater by Design and Show Cinemas earn about the same net income and have similar financial positions, your decision depends on their statement of cash flows, summarized as follows:
Theater by Design Show Cinemas
Net Cash Provided by Operating Activities \( 30,000 \) 70,000
Cash Provided by (Used for) Investing Activities:
Purchase of Plant Assets \( (20,000) \) (100,000)
Sale of Plant Assets 40,000 20,000 10,000 (90,000)
Cash Provided by (Used for) Financing Activities:
Issuance of Common Stock 0 30,000
Payment of Long-term Debt (40,000) 0
Net Increase (Decrease) in Cash \( 10,000 \) 10,000
Based on their cash flows, which company looks better? Give your reasons.
Muscateer Corp. reported the following revenues and net income amounts:
(In millions)2019 2018 2017 2016
Revenue \( 9,610 \) 9,355 \( 9,050 \) 8,950
Net Income 7,290 6,790 5,020 4,300
Requirements
1. Calculate Muscateer’s trend analysis for revenues and net income. Use 2016 as the
base year, and round to the nearest percent.
2. Which measure increased at a higher rate during 2017–2019?
The following data are adapted from the financial statements of Bridget’s Shops, Inc.:
Total Current Assets $ 1,216,000
Accumulated Depreciation 2,000,000
Total Liabilities 1,540,000
Preferred Stock 0
Debt Ratio 55%
Current Ratio 1.60
Prepare Bridget’s condensed balance sheet as of December 31, 2018.
Explaining financial statements
Caleb King is interested in investing in Orange Corporation. What types of tools should Caleb use to evaluate the company?
Determining the effects of business transactions on selected ratios Financial statement data of Style Traveler Magazine include the following items:
Cash | \( 23,000 |
Accounts Receivable, Net | 81,000 |
Merchandise Inventory | 185,000 |
Total Assets | 635,000 |
Accounts Payable | 99,000 |
Accrued Liabilities | 37,000 |
Short-term Notes Payable | 51,000 |
Long-term Liabilities | 224,000 |
Net Income | 68,000 |
Common Shares Outstanding | 20,000 shares |
Requirements
Current Ratio Debt Ratio Earnings per Share |
2.Compute the three ratios after evaluating the effect of each transaction that follows. Consider each transaction separately
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