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# indicate by the appropriate code letter, whether it is a liquidity ratio, a profitability ratio, or a solvency ratio.

. For each of the ratios listed below,
indicate by the appropriate code letter, whether it is a liquidity ratio, a
profitability ratio, or a solvency ratio.

Code:

L
= Liquidity
ratio

P
= Profitability
ratio

S = Solvency
ratio

____ 1. Price-earnings ratio

____ 2. Asset turnover

____ 3. Accounts receivable turnover

____ 4. Earnings per share

____ 5. Payout ratio

____ 6. Current ratio

____ 7. Acid-test ratio

____ 8. Debt to assets ratio

____ 9. Times interest earned

____ 10. Inventory turnover

#### Set B

237. Match the ratios with the appropriate ratio
computation by entering the appropriate letter in the space provided.

A. Current ratio F. Times interest earned

B. Acid-test ratio G. Inventory turnover

C. Profit margin H. Average collection period

D. Asset turnover I. Days in inventory

E. Price-earnings ratio J. Payout
ratio

Cost
of goods sold

____ 1. —————————

Average
inventory

Net
income

____ 2. —————

Net
sales

Cash
dividends

____ 3. ———————

Net
income

Net
sales

____ 4. ———————

Average assets

Current assets

____ 5. ————————

Current liabilities

365
days

____ 6. ——————————

Accounts
receivable turnover

Market
price per share of stock

____ 7. ——————————————

Earnings
per share

365
days

____ 8. ————————

Inventory
turnover

Income
before income taxes and interest expense

____ 9. ——————————————————————

Interest
expense

Cash
+ short-term investments + receivables (net)

____ 10. ———————————————————————

Current
liabilities

##### S-A E 238

Horizontal and vertical analyses are analytical
tools frequently used to analyze financial statements. What type of information
or insights can be obtained by using these two techniques? Explain how the output of horizontal analysis
and vertical analysis can be compared to industry averages and/or competitive
companies.

##### S-A E 239

Harve Reardon, the CEO of Mythic
Products, is a successful entrepreneur but a poor student of accounting. He
asks you to explain to him, in a memo, the bases of comparison for ratio
analysis.

##### S-A E 240

What do the following classes of ratios measure? (a) Liquidity ratios. (b) Profitability ratios.
(c) Solvency ratios.

##### S-A E 241

(a) What is meant by trading on the equity?

(b) How would you determine the profitability of

##### S-A E 242

Why is it important to report discontinued
operations separately from income from continuing operations?

##### S-A E 243 (Ethics)

A trusted employee of Outback Tours was caught in
the act of embezzling funds. He confessed to earlier embezzlements, but
retracted the confession on the advice of his attorney. Over the course of the
most recent quarter, it has been determined that \$20,000 was embezzled.

Outback Tours
has suffered adverse publicity in the recent past because of serious injury to
five tourists that occurred during a two week “Winter Wilds
Adventure” tour. The company has therefore decided to avoid publicity and
has agreed to drop all charges against the embezzling employee. In return, the
employee has agreed to a notation of “Terminated—Not to be Rehired”
to be appended to his personnel file.

Required:

1. Who are the stakeholders in the
decision not to prosecute?

2. Was it
ethical for the company to decide not to prosecute? Explain.

##### S-A E 244 (Communication)

Phast Express specializes in the
overnight transportation of medical equipment and laboratory specimens. The
company has selected the following information from its most recent annual
report to be the subject of an immediate press release.

·
The
financial statements are being released.

·
Net
income this year was \$2.12 million. Last year’s net income had been \$2.0
million.

·
The
current ratio has changed to 2:1 from last year’s 1.4:1

·
The
debt/assets ratio has changed to 3:5 from last year’s 2:5

·
The
company expanded its truck fleet substantially by purchasing ten new delivery

·
The
company is now the largest medical courier in the mid-Atlantic region.

Required:

Prepare a brief press release incorporating the
information above. Include all information. Think carefully which information
(if any) is good news for the company, and which (if any) is bad news.

## Price: £ 45

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