Tutorial 12 Questions

S17-2 Performing horizontal analysis

Learning Objective 2

McDonald Corp. reported the following on its comparative income statement:

Prepare a horizontal analysis of revenues and gross profit—both in dollar amounts and in
percentages—for 2017 and 2016.

S17-3 Calculating trend analysis

Learning Objective 2

Variline Corp. reported the following revenues and net income amounts:

Requirements
1. Calculate Variline’s trend analysis for revenues and net income. Use 2014 as the base year,
and round to the nearest percent.
2. Which measure increased at a higher rate during 2015–2017?

S17-4 Performing vertical analysis

Learning Objective 3

Hoosier Optical Company reported the following amounts on its balance sheet at December 31,
2016 and 2015:
Prepare a vertical analysis of Hoosier assets for 2016 and 2015.

E17-20 Computing key ratios

Learning Objective 4
g. 36.5 days

Dory Corporation had the following comparative current assets and current liabilities:

During 2014, credit sales and cost of goods sold were $750,000 and $400,000, respectively.

Requirements
Compute the following liquidity measures for 2014:
a. Current ratio.
b. Working capital.
c. Acid-test ratio.
d. Accounts receivable turnover ratio
e. Inventory turnover.
f. Cash ratio
g. Days’ sales in receivables
h. Gross profit percentage

E17-21 Analyzing the ability to pay liabilities

Learning Objective 4
d. 2014 0.25

Data for Dabbani Company follows:

Compute the following ratios for 2014 and 2013:
a. Current ratio
b. Cash ratio
c. Acid-test ratio
d. Debt ratio
e. Debt to equity ratio

E17-22 Analyzing profitability

Learning Objective 4
1. 2017 11.6%

Varsity, Inc.’s comparative income statement follows. The 2015 data are given as needed.

Requirements
1. Calculate the profit margin ratio for 2017 and 2016.
2. Calculate the rate of return on total assets for 2017 and 2016.
3. Calculate the asset turnover ratio for 2017 and 2016.
4. Calculate the rate of return on common stockholders’ equity for 2017 and 2016.
5. Calculate the earnings per share for 2017 and 2016.
6. Calculate the 2017 dividend payout on common stock. Assume dividends per share for
common stock are equal to $0.75 per share.
7. Did the company’s operating performance improve or deteriorate during 2017?

P17-30A Determining the effects of business transactions on selected ratios

Learning Objective 4
1. Current Ratio 1.49

Financial statement data of Off Road Traveler Magazine include the following items:

Requirements
1. Compute Off Road Traveler’s current ratio, debt ratio, and earnings per share. Round all
ratios to two decimal places, and use the following format for your answer:

P17-31A Using ratios to evaluate a stock investment

Learning Objective 4
1. 2016 e. 49%

Comparative financial statement data of Dangerfield, Inc. follow:

1. Market price of Dangerfield’s common stock: $76.67 at December 31, 2016, and $37.20 at
December 31, 2015.
2. Common shares outstanding: 13,000 during 2016 and 11,000 during 2015 and 2014.
3. All sales are on credit.

Requirements
1. Compute the following ratios for 2016 and 2015:
a. Current ratio
b. Cash ratio
c. Times-interest-earned ratio
d. Inventory turnover
e. Gross profit percentage
f. Debt to equity ratio
g. Rate of return on common stockholders’ equity
h. Earnings per share of common stock
i. Price/earnings ratio
2. Decide (a) whether Dangerfield’s ability to pay debts and to sell inventory improved or
deteriorated during 2016 and (b) whether the investment attractiveness of its common stock
appears to have increased or decreased.

P17-32A Using ratios to decide between two stock investments

Learning Objective 4
1. Best Digital e. $4.67

Assume that you are purchasing an investment and have decided to invest in a company in the
digital phone business. You have narrowed the choice to Best Digital Corp. and Very Zone, Inc.
and have assembled the following data.

Selected income statement data for the current year:

Selected balance sheet and market price data at the end of the current year:
Selected balance sheet data at the beginning of the current year:

Your strategy is to invest in companies that have low price/earnings ratios but appear to be in
good shape financially. Assume that you have analyzed all other factors and that your decision
depends on the results of ratio analysis.
Requirements
1. Compute the following ratios for both companies for the current year:
a. Acid-test ratio
b. Inventory turnover
c. Days’ sales in receivables
d. Debt ratio
e. Earnings per share of common stock
f. Price/earnings ratio
g. Dividend payout
2. Decide which company’s stock better fits your investment strategy.