SPJIMR: PGMPW 2022: Financial Statement Analysis

Topic: Financial Statement Analysis

Adapted from the book – Financial Statement Analysis by Gibson
1. The following financial data were taken from the annual financial statements of Smith
Corporation:
2017 ( Rs.) 2018 ( Rs.) 2019 (Rs.)
Current Assets 4,50,000 4,00,000 5,00,000
Current liabilities 3,90,000 3,00,000 3,40,000
Sales 14,50,000 15,00,000 14,00,000
Cost of Goods sold 11,80,000 10,20,000 11,20,000
Inventory 2,80,000 2,00,000 2,50,000
Accounts Receivables 1,20,000 1,10,000 1,05,000
Required:
a. Based on these data, calculate the following for 2018 & 2019:
Working Capital
Current Ratio
Acid test Ratio
Accounts receivable turnover
Merchandise inventory turnover
Inventory turnover in days
b. Evaluate the results of your computations in regard to the short term liquidity of the firm.

2. J. A. Appliance Company has supplied you with the following data regarding working capital
and sales for the years 2019, 2018 and 2017.
2019 2018 2017
Working Capital 2,70,000 2,60,000 2,40,000
Sales 6,50,000 6,00,000 5,00,000
Industry average for the ratio sales to working 4.10 times 4.05 times 4.00 times
capital
Required:
a. Compute the sales to working capital ratio for each year.
b. Comment on the sales to working capital ratio of the Company in relation to the Industry
average and what this may indicate.

1/SM