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Chapter 15: Q6SE (page 837)
Evaluating current ratio
Requirements
1. Compute Accel’s Companies’ current ratio at May 31, 2018 and 2017.
2. Did Accel’s Companies’ current ratio improve, deteriorate, or hold steady during 2018?
Answer
Decreasing Current ratio Over a year
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Measuring ability to pay liabilities
Requirements
1. Compute the debt ratio and the debt-to-equity ratio at May 31, 2018, for Accel’s
Companies.
2. Is Accel’s ability to pay its liabilities strong or weak? Explain your reasoning.
Verifine Corp. reported the following on its comparative income statement:
(In millions)2019 2018 2017
Revenue \( 9,890 \) 9,690 $ 9,135
Cost of Goods Sold 6,250 6,000 5,890
Prepare a horizontal analysis of revenues and gross profit—both in dollar amounts
and in percentages—for 2019 and 2018.
Preparing common-size statements, analysis of profitability and financial position, comparison with the industry, and using ratios to evaluate a company
Consider the data for Randall Department Stores presented in Problem P15-31B.
Requirements
Briefly describe the ratios that can be used to evaluate a company’s profitability.
Completing a comprehensive financial statement analysis
In its annual report, ABC Athletic Supply, Inc. includes the following five-year financial summary:
| ABC ATHLETIC SUPPLY, INC. Five-Year Financial Summary (Partial; adapted) | ||||||
(Dollar amounts in thousands except per share data) | 2018 | 2017 | 2016 | 2015 | 2014 | 2013 |
Net Sales Revenue | \(250,000 | \)216,000 | \(191,000 | \)161,000 | \(134,000 | |
Net Sales Revenue Increase | 16% | 13% | 19% | 20% | 17% | |
Domestic Comparative Store Sales Increase | 5% | 6% | 4% | 7% | 9% | |
Other Income—Net | 2,110 | 1,840 | 1,760 | 1,690 | 1,330 | |
Cost of Goods Sold | 189,250 | 164,592 | 148,216 | 126,385 | 106,396 | |
Selling and Administrative Expenses | 41,210 | 36,330 | 31,620 | 27,440 | 22,540 | |
Interest: | ||||||
Interest Expense | (1,080) | (1,380) | (1,400) | (1,020) | (830) | |
Interest Income | 125 | 165 | 155 | 235 | 190 | |
Income Tax Expense | 4,470 | 3,900 | 3,700 | 3,320 | 2,700 | |
Net Income | 16,225 | 11,803 | 7,979 | 4,760 | 3,054 | |
Per Share of Common Stock: | ||||||
Net Income | 1.60 | 1.30 | 1.20 | 1.00 | 0.78 | |
Dividends | 0.40 | 0.38 | 0.34 | 0.30 | 0.26 | |
Financial Position | ||||||
Current Assets, Excluding Merchandise Inventory | \)30,700 | \(27,200 | \)26,700 | \(24,400 | \)21,500 | |
Merchandise Inventory | 24,500 | 22,600 | 21,700 | 19,000 | 17,500 | $16,700 |
Property, Plant, and Equipment, Net | 51,400 | 45,200 | 40,000 | 35,100 | 25,600 | |
Total Assets | 106,600 | 95,000 | 88,400 | 78,500 | 64,600 | |
Current Liabilities | 32,300 | 28,000 | 28,300 | 25,000 | 16,500 | |
Long-term Debt | 23,000 | 21,500 | 17,600 | 19,100 | 12,000 | |
Stockholders’ Equity | 51,300 | 45,500 | 42,500 | 34,400 | 36,100 | |
Financial Ratios | ||||||
Acid-Test Ratio | 1.0 | 1.0 | 0.9 | 1.0 | 1.3 | |
Rate of Return on Total Assets | 17.2% | 14.4% | 11.2% | 8.1% | 7.1% | |
Rate of Return on Common Stockholders’ Equity | 35.5% | 26.% | 20.8% | 13.5% | 13.0% | |
Requirements
Analyze the company’s financial summary for the fiscal years 2014–2018 to decide whether to invest in the common stock of ABC. Include the following sections in your analysis.
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