Christina Jud

HPA 14 Assignment Due Monday October 26, 2020

1. Page 411 End of Chapter Questions 13.6 a.,b.

2. 13.6

a. What is the difference between trend analysis and comparative analysis?

In trend analysis, a single trend is looked at and analyzed over a period of time. It shows if a
business’s financial condition is improving, remaining constant, or deteriorating. In comparative
analysis, a business’s ratios are looked at and compared with a sector average.

b. Which is more important?

Both are crucial in order to look at a business overall. Trend analysis however is more important
because it offers more insight on the overall financial condition of a business.

3. Page 412 End of Chapter Problems 13.3 a.,b.

4. 13.3 Park Ridge Homecare’s financial statements are presented in exhibits 13.1, 13.2, and
13.3. In the chapter, we calculate selected ratios for 2016.

a. Calculate the business’s financial ratios for 2015. Assume that Park Ridge had $18,000 in
lease payments in 2015. (Use the ratio analysis discussion to identify the applicable
ratios.)
Profit margin= net income/total revenue
Profit margin= 99,000/2,666,000 + 86,000 = 3.60%

Operating margin= operating income/operating revenue

58,000/2,666,000= 2.18%

Return on Asset= net income/total equity

99,000/315,000 = 1.77

Debt Ratio= total liabilities/total assets

564,000/879,000= 64.16%

Time interest earned ratio= what is earned prior to tax/interest expense

125,000/19,000= 6.58

Fixed asset turnover ratio= total revenue/net fixed asset

2,666,000 +86,000/77,000= 35.74

Asset turnover= total revenue/total asset

2,752,000/879,000= 3.13
 b. Interpret the ratios. For the analysis, assume that the sector average data presented in the
ratio analysis section are valid for 2015.

The profit margin for PRH is 3.60 as opposed to 5.94 for the sector average. PRH has a small
margin compared to the sector average.
The operating margin FOR PRH is 2.18% which is well below the sector average of 5.6%.

The return on equity PRH is 31,43% which is below the sector standard of 36.5%.

The return on assets for PRH is 11.26% which is below the sector average of 12.7%

The current ratio of PRH is 1.77 and the sector average is 1.9. PRH is again below the sector
average.

The debt ratio for PRH is 64.16% and the sector average is 63.9%. This is the first category thus
far where PRH is above the sector average.

The cash flow ratio for PRH is 2.77, and the sector average is 3.3. Again, PRH is below this
number.

**Page 399 Focus on Summary of Key Ratios; formulas and definitions

3. Read Chapter 4 in text with specific attention to pages 85 through 96

.Page 88 Self Test Questions 1., 2., 3

.What is the meaning of managerial accounting? How is that different than what we
studied in
financial accounting?

Managerial accounting is used for measuring, analyzing, interpreting, and communicating the
financial information of a business to managers to fulfill an organization's goals

In financial accounting, data is collected in order to create a financial statement

1. What is the primary purpose of managerial accounting information?

It is used in routine budgeting and helps managers to make decisions. It can also be used in
alternative modes of delivery. In addition, it measures costs.

2. What is meant by the term cost?

Cost is a resource that is associated with providing or supporting a specific service.

3. What are the two primary ways that costs can be classified?
Costs are classified by their relationship to volume (amount), or their relationship to unit
(department).
.Cost structure graph, Exhibit 4.2 on page 95. Interpret the graph, i.e. explain the
relationship
of the different cost lines

The fixed costs remain constant over this period of time.

As the volume (number of tests) increases, total costs and total variable costs also increase.