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Finance assignment – analysis of income statements

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1-Horizontal Analysis of Income Statement and Balance Sheet
Prepare a three-year horizontal analysis of the income statement and balance sheet of your selected company.  Discuss the importance and meaning of horizontal analysis.  Discuss both the positive and negative trends presented in your company.  

2-Ratio Analysis
Calculate the current ratio, quick ratio, cash to current liabilities ratio, over a two-year period.   Discuss and interpret the ratios that you calculated.  Discuss potential liquidity issues based on your calculations of the current and quick ratios.  Are there any factors that could be erroneously influencing the results of the ratios?  Discuss liquidity issues of competitive companies within the same industry.  

3-Recommendation
Based on your analysis would you recommend an individual invest in this company?  What strengths do you see?  What risks do you see?  It is perfectly acceptable to state that you would recommend avoiding this company as long as you provide support for your position. 

 

4-Liquidity ratios. Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:

 

 

Edison

Stagg

Thornton

Cash

$4,000

$2,500

$1,000

 

Short-term investments

3,000

2,500

2,000

 

Accounts receivable

2,000

2,500

3,000

 

Inventory

1,000

2,500

4,000

 

Prepaid expenses

800

800

800

 

Accounts payable

200

200

200

 

Notes payable: short-term

3,100

3,100

3,100

 

Accrued payables

300

300

300

 

Long-term liabilities

3,800

3,800

3,800

 

             

 

 

  1. Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most liquid? Why?

5-Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc:

 

 

19X5

19X4

Net credit sales

$832,000

$760,000

 

Cost of goods sold

440,000

350,000

 

Cash, Dec. 31

125,000

110,000

 

Average Accounts receivable

180,000

140,000

 

Average Inventory

70,000

50,000

 

Accounts payable, Dec. 31

115,000

108,000

 

         

 

  1. Compute the accounts receivable and inventory turnover ratios for 19X5. Alaska rounds all calculations to two decimal places.

 

6-Profitability ratios, trading on the equity. Digital Relay has both preferred and common stock outstanding. The com­pany reported the following information for 19X7:

 

Net sales

$1,500,000

Interest expense

120,000

Income tax expense

80,000

Preferred dividends

25,000

Net income

130,000

Average assets

1,100,000

Average common stockholders’ equity

400,000

 

 

  1. Compute the gross profit margin ratio, the return on equity and the return on assets, rounding calculations to two decimal places.
  2. Does the firm have positive or negative financial leverage? Briefly ex­plain.

 

7-Horizontal analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow.

 

20X2

20X1

Current Assets

$ 76,000

$ 80,000

Property, Plant, and Equipment (net)

99,000

90,000

Intangibles

25,000

50,000

Current Liabilities

40,800

48,000

Long-Term Liabilities

143,000

160,000

Stockholders’ Equity

16,200

12,000

Net Sales

500,000

500,000

Cost of Goods Sold

332,500

350,000

Operating Expenses

93,500

85,000

       

 

 

Prepare a horizontal analysis for 20X1 and 20X2. Briefly comment on the results of your work

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