- Financial ratio analysis is conducted by managers, equity investors, long-term creditors, and short-term creditors. What is the primary emphasis of each of these groups in evaluating ratios?
- What is the advantage of using comparative statements for financial analysis rather than statements for a single date or period?
- The current year’s amount of net income (after income tax) is 20% larger than that of the preceding year. Does this indicate an improved operating performance? Discuss.
- How would you respond to a horizontal analysis that showed an expense increasing by over 80%?
- How would the current and quick ratios of a service business compare?
- The condensed income statements through income from operations for Dell Inc. and Apple Computer, Inc., are reproduced below for recent fiscal years (numbers in millions of dollars).
Dell Inc. Computer, Inc.
Sales (net) $57,420 $24,006
Cost of sales 44,904 15,852
Gross profit $12,516 $8,154
Selling, general, and administrative expenses$ 5,948 $ 2,963
Research and development 498 782
Operating expenses $6,446 $3,745
Income from operations $6,070 $4,409
Prepare comparative common-sized statements, rounding percents to one decimal place. Interpret the analyses.
- The following data apply to Jacobus and Associates (millions of dollars):
Current liability $100.00
Prepaid expense 20.00
Total assets $283.50
Net income $50.00
Quick ratio 2.0
Current ratio 3.0
A/R Turn over 4 times
Capitalization ratio 30%
Jacobus has no preferred stock—only common equity
- Find Jacobus’s (1) Average collection period, (2) current assets, (3) Inventory, (4) ROA, (4) common equity, and (5) long-term debt.