. 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.
S = Solvency
____ 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
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
of goods sold
____ 1. —————————
____ 2. —————
____ 3. ———————
____ 4. ———————
____ 5. ————————
____ 6. ——————————
price per share of stock
____ 7. ——————————————
____ 8. ————————
before income taxes and interest expense
____ 9. ——————————————————————
+ short-term investments + receivables (net)
____ 10. ———————————————————————
SHORT-ANSWER ESSAY QUESTIONS
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
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
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
trading on the equity?
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.
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.
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.
financial statements are being released.
income this year was $2.12 million. Last year’s net income had been $2.0
current ratio has changed to 2:1 from last year’s 1.4:1
debt/assets ratio has changed to 3:5 from last year’s 2:5
company expanded its truck fleet substantially by purchasing ten new delivery
vans. The company already had twelve delivery vans.
company is now the largest medical courier in the mid-Atlantic region.
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.