ACTG 2P31 Chapter Notes - Chapter 5: Contingent Liability, Accounts Payable, Cash Cash

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13 Dec 2016

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The b/s is useful for analyzing liquidity, solvency & financial flexibility. Ability of firm to generate sufficient cash to cover its short-term obligations. Amount of time for an asset to be turned into cash. Look at working capital, current ratio, quick ratio, receivables turnover ratio, inventory turnover ratio. Ability of firm to pay its debt & interest payments over long-term. Look at debt/asset ratio, times interest earned ratio. Ability of firm to generate cash flows as needed to meet unexpected emergencies or opportunities. Has non-operating assets that can easily be sold to raise cash. Cash comes from operations (rather than from selling long-term assets or issuing debt or equity) low debt/total asset ratio gives more room for firm to borrow more in future if needed. Limitations of the balance sheet prepared under gaap. Many assets shown at hc not so relevant for predicting future cash flows.

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Ratio	2010	2009	2008	2010 Industry Average
Long-term debt	0.45	0.40	0.35	0.35
Inventory turnover	62.65	42.42	32.25	53.25
Depreciation/total assets	0.25	0.014	0.018	0.015
Daysâ sales in receivables	113	98	94	130.25
Debt to equity	0.75	0.85	0.90	0.88
Profit margin	0.082	0.07	0.06	0.075
Total asset turnover	0.54	0.65	0.70	0.40
Quick ratio	1.028	1.03	1.029	1.031
Current ratio	1.33	1.21	1.15	1.25
Times interest earned	0.9	4.375	4.45	4.65
Equity multiplier	1.75	1.85	1.90	1.88

Referring to the given data, the CEO of WQY Inc. wrote, "2008was a good year for the firm with respect to our ability to meetour short-term obligations. We had higher liquidity largely due toan increase in highly liquid current assets (cash, accountreceivables, and short-term marketable securities)."

Do you think the CEO is correct in making this statement?Explain your stand and use only the given data for youranalysis.

Submission Requirements:

Submit the completed assessment as a Word document.

Gather info for Proctor &Gamble in 2016 for below. Please Help

Current

Prior

QUESTIONS

Year

Total cash received from the issuance of newdebt

Total cash paid to retire debt

Total amount due to all creditors

Current

NonCurrent

Short-term debt

The amount the company must pay to retire ALL ofits NOTES & DEBENTURES

Amount of long-term debt due each of the next fiveyears

Amount of interest costs expensed

Amount of interest costs capitalized

Compute the following ratios

current ratio

acid-test ratio

cash debt coverage

accts receivable turnover

inventory turnover

Comment on the company's liquidity

107

Fair value of all of the company's notes &debentures at the end of the current year?

Why might a difference exist between the book valueand fair value of debts (notes/debentures)?

Estimate the company's "cash" interest rate for thecurrent year

interest paid/ beg notes

Forecast the company's cash interest payment forthe upcoming year on long-term

0.0%

Estimate the total amount of cash the company willpay in principal and interest on long-term

Compute the following ratios

debt/total assets

times interest ernd

debt/equity

Comment on the company's solvency and financialflexibility.

Prepare a journal entry to record the purchase andretirement of the companyâs

long-term debt at the end of the current year at101% of its book value.

N/P

LOSS

CASH

109

Does the company own any derivative securities orengage in hedging transactions?

Describe

Does the company have any loss or gaincontingencies outstanding? Describe

106

1. The formula for Accounts Receivable turnover is

Select one:

a. Net Sales / average accounts receivable

b. Cost of goods sold / average accounts receivable

c. Net Sales / average merchandise inventory

d. 360 days / average accounts receivable

2. The category of ratios that determine the economic status ofpublicly-traded companies is

Select one:

a. Profitability ratios

b. Market value ratios

c. Liquidity Ratios

d. Solvency ratios

3. The working capital ratio is

Select one:

a. Quick assets / current liabilities

b. Working capital /current liabilities

c. Current assets minus current liabilities

d. Current assets/current liabilities

4. Earnings per share is calculated by

Select one:

a. Dividing net income by the authorized ordinary shares.

b. Dividing net income less preferred dividends by number ofordinary shares outstanding.

c. None of the above.

d. Dividing net income by the total number of ordinary andpreferred shares issued.

5. Which of the following belong to the profitabilityratios?

Select one:

a. Rate of return on equity

b. Rate of return on assets

c. All of the above

d. Gross Profit Margin

6. The category of ratios that shows the ability of the firm topay its long-term obligations is

Select one:

a. Profitability ratios

b. Solvency ratios

c. Market value ratios

d. Liquidity Ratios

7. Operating profit margin equals

Select one:

a. Income from operations / sales

b. Net income / sales

c. Gross profit / sales

d. Profit from operations / cost of sales

8. The following are quick assets except

Select one:

a. Short-term investments

b. Merchandise Inventory

c. Accounts Receivable

d. Cash

9. The following are liquidity ratios except

Select one:

a. Earnings per share

b. Working capital ratio

c. Quick ratio

d. Receivable turnover

10. Quick assets equals

Select one:

a. All current assets

b. Cash and Accounts receivable only.

c. Total assets less non-current assets

d. Current assets minus inventory

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ACTG 2P31 Chapter Notes - Chapter 5: Contingent Liability, Accounts Payable, Cash Cash

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