CHAPTER – 2 (Financial Statement Analysis)

E15-15 Performing horizontal analysis—income statement

Learning Objective 2
1. Net Income 35.7%

Data for McCormick Designs, Inc. follow:

Requirements
1. Prepare a horizontal analysis of the comparative income statement of McCormick Designs,
Inc. Round percentage changes to one decimal place.
2. Why did 2016 net income increase by a higher percentage than net sales revenue?

Use the following information for Short Exercises S15-6 through S15-10.

Shine’s Companies, a home improvement store chain, reported the following summarized
figures:
Requirements
1. Prepare horizontal analysis of the balance sheet of Shine Company during 2015 and 2016.

E15-17 Performing vertical analysis of a balance sheet

Learning Objective 3
2016 Current Assets: 15.7%
Tri Designs, Inc. has the following data:
Perform a vertical analysis of Tri Designs’s balance sheet for each year.

P15-28A Performing vertical analysis

Learning Objective 2
1. Net Income 10.7%

The Roost Department Stores, Inc. chief executive officer (CEO) has asked you to compare the
company’s profit performance and financial position with the averages for the industry. The
CEO has given you the company’s income statement and balance sheet as well as the industry
average data for retailers.

Requirements
1. Prepare a vertical analysis for Roost for both its income statement and balance sheet.
Compare the company’s profit performance and financial position with the average for the
industry.

S15-3 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
E15-16 Computing trend analysis
Learning Objective 2
1. 2017 Net Income 166%

Grand Oaks Realty’s net revenue and net income for the following five-year period,
using 2013 as the base year, follow:

Requirements
1. Compute a trend analysis for net revenue and net income. Round to the nearest full percent.
2. Which grew faster during the period, net revenue or net income?

E15-20 Computing key ratios

Learning Objective 4
e. 78 days

The financial statements of Victory’s Natural Foods include the following items:

Compute the following ratios for the current year:

E15-21 Analyzing the ability to pay liabilities

Big Bend Photo Shop has asked you to determine whether the company’s ability to pay current
liabilities and total liabilities improved or deteriorated during 2016. To answer this question, you
gather the following data:

Compute the following ratios for 2016 and 2015, and evaluate the company’s ability to pay its
current liabilities and total liabilities:

P15-31A Using ratios to evaluate a stock investment

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
P15-38B Using ratios to evaluate a stock investment

Comparative financial statement data of Canfield, Inc. follow:

1. Market price of Canfield’s common stock: $84.32 at December 31, 2016, and $51.75 at
December 31, 2015.
2. Common shares outstanding: 10,000 during 2016 and 9,000 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 Canfield’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.

P15-41 Using ratios to evaluate a stock investment

This problem continues the Daniels Consulting situation from Problem P14-46 of Chapter 14.
Assuming Daniels Consulting’s net income for the year was $90,537 and knowing that the
current market price of Daniels’s stock is $200 per share, calculate the following ratios for 2017
for the company:
a. Current ratio
b. Cash ratio
c. Debt ratio
d. Debt to equity ratio
e. Earnings per share
f. Price/earnings ratio
g. Rate of return on common stockholders’ equity
S15-11 Using ratios to reconstruct an income statement

Vintage Mills’s income statement appears as follows (amounts in thousands):

Use the following ratio data to complete Vintage Mills’s income statement:
1. Inventory turnover is 4.70 (beginning Merchandise Inventory was $750; ending Merchandise
Inventory was $710).
2. Profit margin ratio is 0.16.

S15-12 Using ratios to reconstruct a balance sheet

Walsham Mills’s balance sheet appears as follows (amounts in thousands):

Use the following ratio data to complete Walsham Mills’s balance sheet.
a. Current ratio is 0.86.
b. Acid-test ratio is 0.40.