Topic 7 A181 - Financial Statement Analysis

Chapter 6
Topic Financial
Statements
7 Analysis
100 Shares
Analysing
Financial Stmts?
RM1 par value
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2007
Learning Objectives
1. Describe basic financial statement analytical

methods.
2. Use financial statement analysis to assess the
solvency of a business.
3. Use financial statement analysis to assess the
profitability of a business.
Basic Analytical Methods
o Users analyze a company’s financial

statements using a variety of analytical
methods. Three such methods are as follows:
 Horizontal analysis
 Vertical analysis
 Common-sized statements
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Horizontal Analysis
o The percentage analysis of increases and

decreases in related items in comparative
financial statements is called horizontal
analysis.
HORIZONTAL ANALYSIS
HORIZONTAL ANALYSIS
Horizontal
Analysis:
Difference RM17,000
= 3.2%
Base year (2013) RM533,000
HORIZONTAL ANALYSIS
HORIZONTAL
ANALYSIS
Horizontal
Analysis:
Difference RM25,800
= 39.9%
Base year (2013) RM64,700
HORIZONTAL ANALYSIS
HORIZONTAL ANALYSIS
Horizontal
Analysis:
Difference RM296,500
= 24.0%
Base year (2013) RM1,234,000
HORIZONTAL ANALYSIS
HORIZONTAL
ANALYSIS
Horizontal
Analysis:
Difference RM37,500
= 37.5%
Base year (2013) RM 100,000
Example Exercise 15-1
Horizontal Analysis
The comparative cash and accounts receivable

balances for a company are provided below.
Dec. 31, 2014 Dec. 31, 2013

Cash RM62,500 RM50,000
Accounts receivable (net) 74,400 80,000
Based on this information, what is the amount and

percentage of increase or decrease that would
be shown on a statement of financial position
with horizontal analysis?
Follow My Example 15-1
Cash RM12,500 increase

(RM62,500 – RM50,000), or 25%
Accounts receivable RM5,600 decrease

(RM74,400 – RM80,000), or
(7%)
Vertical Analysis
oA percentage analysis used to show the

relationship of each component to the total
within a single financial statement is called
vertical analysis.
o In a vertical analysis of the statement of
financial position, each asset item is stated as a
percent of the total assets.
o Each liability and equity item is stated as a
percent of the total liabilities and equity.
VERTICAL ANALYSIS
VERTICAL ANALYSIS
Vertical
Analysis:
Current Assets RM550,000

= 48.3%
Total Assets RM 1,139,500
Vertical Analysis
o In a vertical analysis of the statement of

comprehensive income, each item is stated as a
percent of net sales.
VERTICAL ANALYSIS
VERTICAL ANALYSIS
Vertical Analysis:
Selling expenses RM191,000
= 12.8%
Net sales RM1,498,000
Vertical Analysis
Statement of comprehensive income information

for Lee Corporation is provided below.
Sales RM100,000
Cost of goods sold 65,000
Gross profit RM 35,000
Prepare a vertical analysis of the statement of

comprehensive income for Lee Corporation.
Amount Percentage
Sales RM100,000 100% (RM100,000 ÷
RM100,000)
Cost of goods sold 65,000 65 (RM65,000 ÷
RM100,000)
Gross profit RM 35,000 35% (RM35,000 ÷
RM100,000)
Common-Sized Statements
o In a common-sized statement, all items are

expressed as percentages with no dollar
amounts shown.
o Common-sized statements are useful for
comparing the current period with prior
periods, individual businesses with one
another, or one business with industry
averages.
COMMON-SIZED STATEMENTS
Solvency Analysis
o All users of financial statements are interested

in the ability of a company to do the following:
 Meet its financial obligations (debts), called
solvency.
 Earn income, called profitability.
Solvency Analysis
o Solvency analysis focuses on the ability of a

business to pay its current and noncurrent
liabilities.
o Solvency and profitability are interrelated. A
company that cannot pay its debts will have
difficulty obtaining credit, which can decrease
its profitability.
Solvency Analysis
Liquidity and solvency are normally assessed using the following:
1- Current Position Analysis
o Working Capital
o Current Ratio
o Quick Ratio
2- Accounts Receivable analysis
o Accounts Receivable Turnover
o Number of Days’ Sales in Receivables
3- Inventory analysis
o Inventory Turnover
o Number of Days’ Sales in Inventory
4- Ratio of PP&E to non-current liabilities
5- Ratio of Liabilities to Equity
6- Number of Times Interest Charges Earned
1- Current Position Analysis
o A company’s ability to pay its current liabilities

is called current position analysis. It is of
special interest to short-term creditors.
1-1Working Capital
o The excess of current assets over current

liabilities is called working capital. Working
capital is often used to evaluate a company’s
ability to pay current liabilities.
o Working capital is computed as follows:
Working Capital = Current Assets – Current Liabilities
1-2Current Ratio
o The current ratio, sometimes called the

working capital ratio, also measures a
company’s ability to pay its current liabilities.
o The current ratio is computed as follows:
Current Assets
Current Ratio =
Current Liabilities
1-3 Current Ratio
o The current ratio for Lincoln Company is

computed below.
2014 2013
Current assets RM550,000 RM533,000
Current liabilities RM210,000 RM243,000
Current ratio 2.6 2.2
RM550,000 RM533,000
RM210,000 RM243,000
1-4 Quick Ratio
o A ratio that measures the “instant” debt-paying

ability of a company is called the quick ratio,
or acid-test ratio. It is computed as follows:
Quick Assets
Quick Ratio =
Current Liabilities
Quick assets are cash

and other assets that
can be easily
converted to cash.
Quick Assets
o The quick ratio for Lincoln Company is

computed below.
Quick assets: 2014 2013

Cash RM 90,500 RM 64,700
Temporary Investments 75,000 60,000
Accounts receivable (net) 115,000 120,000
Total quick assets RM280,500 RM244,700
Current liabilities RM210,000 RM243,000
Quick ratio 1.3 1.0
RM280,500
RM210,000 RM244,700
RM243,000
Current Position Analysis
The following items are reported on a company’s
statement of financial position:
Cash RM300,000
Temporary investments 100,000
Accounts receivable (net) 200,000
Inventory 200,000
Accounts payable 400,000
Determine (a) the current ratio and (b) the quick
ratio.
a. Current Ratio = Current Assets ÷ Current Liabilities

Current Ratio = (RM300,000 + RM100,000 +
RM200,000 +
RM200,000) ÷ RM400,000
Current Ratio = 2.0
b. Quick Ratio = Quick Assets ÷ Current Liabilities

Quick Ratio = (RM300,000 + RM100,000 + RM200,000)
÷
RM400,000
Quick Ratio = 1.5
2- Accounts Receivable Turnover
o The relationship between sales and accounts

receivable may be stated as accounts
receivable turnover. Collecting accounts
receivable as quickly as possible improves a
company’s solvency.
o The accounts receivable turnover is computed
as follows:
Net Sales
Accounts Receivable Turnover =
Average Accounts
Receivable
2-1 Accounts Receivable Turnover
o The accounts receivable turnover for Lincoln

Company is computed below.
2014 2013
Net sales RM1,498,000 RM1,200,000
Accounts receivable (net):
Beginning of year RM 120,000 RM 140,000
End of year 115,000 120,000
Total RM 235,000 RM 260,000
Average (Total ÷ 2) RM 117,500 RM 130,000
Accounts receivable turnover 12.7 9.2

RM1,498,000 RM1,200,000
RM117,500 RM130,000
2-2 Number of Days’ Sales in Receivables
o The number of days’ sales in receivables is an

estimate of the length of time (in days) the
accounts receivable have been outstanding. It
is computed as follows:
Average Accounts
Number of Days’ = Receivable
Sales in Receivables Average Daily
Sales
Net Sales
365
Number of Days’ Sales in Receivables
o The number of
days’ sales in receivables for
Lincoln Company is computed below.
2014 2013
Average accounts receivable
(Total accounts receivable ÷ 2) RM 117,500 RM 130,000
Net sales RM1,498,000 RM1,200,000
Average daily sales
(Net sales ÷ 365) RM 4,104 RM 3,288
Number of days’ sales in receivables 28.6 39.5

RM117,500
RM130,000
RM4,104
RM3,288
Accounts Receivable Analysis
A company reports the following:

Net sales
RM960,000
Average accounts receivable (net) 48,000
Determine (a) the accounts receivable turnover
and (b) the number of days’ sales in receivables.
Round to one decimal place.
a. Accounts Receivable Turnover =
Net Sales ÷ Average Accounts Receivable
Accounts Receivable Turnover =
RM960,000 ÷ RM48,000
Accounts Receivable Turnover = 20.0
b. Number of Days’ Sales in Receivables = Average

Accounts Receivable ÷ Average Daily Sales
Number of Days’ Sales in Receivables =
RM48,000 ÷ (RM960,000 ÷ 365) = RM48,000 ÷
RM2,630
Number of Days’ Sales in Receivables = 18.3 days
3- Inventory Turnover
o The relationship between the volume of goods

(merchandise) sold and inventory may be
stated as the inventory turnover. The purpose
of this ratio is to assess the efficiency of a firm
in managing its inventory.
o The inventory turnover is computed as follows:
Cost of Goods Sold

Inventory Turnover =
Average Inventory
3-1 Inventory Turnover
o Lincoln’s inventory balance at the beginning of

2013 is RM311,000.
2014 2013
Cost of goods sold RM1,043,000 RM820,000
Inventories:
Beginning of year RM 283,000 RM311,000
End of year 264,000 283,000
Total RM 547,000 RM594,000
Average (Total ÷ 2) RM 273,500 RM297,000
Inventory turnover 3.8 2.8

RM1,043,000 RM820,000
RM273,500 RM297,000
3-2 Number of Days’ Sales in Inventory
o The number of days’ sales in inventory is a

rough measure of the length of time it takes to
purchase, sell, and replace the inventory.
o The number of days’ sales in inventory is
computed as follows:
Number of Days’ Average Inventory

=
Sales in Inventory Average Daily Cost of
Goods Sold
Cost of Goods Sold
365
Number of Days’ Sales in Inventory
o The number of
days’ sales in inventory for
2014 2013
Average Inventory RM273,500 RM297,000
RM547,000 ÷ 2RM594,000 ÷ 2
(continued)
Number of Days’ Sales in Inventory
o The number of
days’ sales in inventory for
2014 2013
Average Inventory RM273,500 RM297,000

Average daily cost of goods sold RM2,858 RM2,247
RM1,043,000 ÷ RM820,000 ÷
365 365
Number of days’ sales in inventory 95.7 132.2
RM273,500 RM297,000
RM2,858 RM2,247
Inventory Analysis

Cost of goods sold RM560,000
Average inventory 112,000
Determine (a) the inventory turnover and (b) the
number of days’ sales in inventory. Round to one
decimal place.
a. Inventory Turnover =
Cost of Goods Sold ÷ Average Inventory
Inventory Turnover = RM560,000 ÷ RM112,000
Inventory Turnover = 5.0
b. Number of Days’ Sales in Inventory = Average

Inventory ÷ Average Daily Cost of Goods Sold
Number of Days’ Sales in Inventory = RM112,000 ÷
(RM560,000 ÷ 365) = RM112,000 ÷ RM1,534
Number of Days’ Sales in Inventory = 73.0 days
4- Ratio of PP&E to non-current liabilities
o The ratio of PP&E to non-current liabilities is a

solvency measure that indicates the margin of
safety of the note-holders or bondholders. It
also indicates the ability of the business to
borrow additional funds on a long-term basis.
o The ratio is computed as follows:
Ratio of PP&E to PP&E (net)

=
non-current liabilities non-current
liabilities
Ratio of PP&E to Non-Current Liabilities
o To illustrate, the ratio of PP&E to non-current

liabilities for Lincoln Company is computed
below.
2014 2013
PP&E (net) RM444,500 RM470,000
Non-current liabilities RM100,000 RM200,000
Ratio of PP&E to
non-current liabilities 4.4 2.4
RM444,500 RM470,000
RM100,000 RM200,000
5- Ratio of Liabilities to Equity
o The relationship between the total claims of

the creditors and the owners—the ratio of
liabilities to equity—is a solvency measure that
indicates the margin of safety for creditors.
Ratio of Liabilities to Total Liabilities

=
Equity Total equity
Ratio of Liabilities to equity
o The ratio of liabilities to equity for Lincoln

2014 2013
Total liabilities RM310,000 RM443,000
Total equity RM829,500 RM787,500
Ratio of liabilities to
equity 0.4 0.6
RM310,000 RM443,000
RM829,500 RM787,500
Long-Term Solvency Analysis
The following information was taken from Acme
Company’s statement of financial position:
PP&E (net) RM1,400,000
Non-current liabilities 400,000
Total liabilities 560,000
Total equity 1,400,000
Determine the company’s (a) ratio of PP&E to

non-current liabilities and (b) ratio of liabilities to
total equity.
a. Ratio of PP&E to Non-Current Liabilities =

PP&E ÷ Non-Current Liabilities
Ratio of PP&E to Non-Current Liabilities =
RM1,400,000 ÷ RM400,000
Ratio of PP&E to Non-Current Liabilities = 3.5
b. Ratio of Liabilities to Total Equity =

Total Liabilities ÷ Total Equity
Ratio of Liabilities to Total Equity =
RM560,000 ÷ RM1,400,000
Ratio of Liabilities to Total Equity = 0.4
6-Number of Times Interest Charges Earned
o Corporations in some industries normally have

high ratios of debt to equity. For such
corporations, the relative risk of the debt-
holders is normally measured as the number of
times interest charges are earned (during the
year), sometimes called the fixed charge
coverage ratio.
Number of Times Interest Charges Earned
o It is computed as follows:
Profit Before Income Tax +
Number of Times Interest Interest Expense
=
Charges Are Earned Interest Expense
o The number of times interest charges are

earned for Lincoln Company is computed
below.
2014 2013
Profit before income tax RM162,500 RM134,600
Add interest expense 6,000 12,000
Amount available to meet
interest charges RM168,500 RM146,600
Number of times interest

charges earned 28.1 12.2
RM168,500 RM146,600
RM6,000 RM12,000
o The number of times interest charges are

earned can be adapted for use with dividends
on preference share.
o The number of times preference dividends are
earned is computed as follows:
Number of Times Net Profit
Preference Dividends =
Are Earned Preference Dividends
Times Interest Charges Are Earned

Profit before income tax RM250,000
Interest expense 100,000
Determine the number of times interest charges

are earned.
Number of Times Interest Charges Are Earned =

(Profit Before Income Tax + Interest Expense) ÷ Interest
Expense
Number of Times Interest Charges Are Earned =

(RM250,000 + RM100,000) ÷ RM100,000
Number of Times Interest Charges Are Earned = 3.5
Profitability Analysis
o Profitability analysis focuses primarily on the
relationship between operating results and the
resources available to a business.
o Common profitability analysis include the following:
1. Ratio of Net Sales to Assets
2. Rate Earned on Total Assets
3. Rate Earned on Equity
4. Rate Earned on Common Equity
5. Earnings per Share on Ordinary Share
6. Price-Earnings Ratio
7. Dividends per Share
8. Dividend Yield
1- Ratio of Net Sales to Assets
o The ratio of net sales to assets is a profitability

measure that shows how effectively a company
utilizes its assets.
Net Sales
Ratio of Net Sales to Assets =
Average Total
Assets
(excluding long-
term investments)
Ratio of Net Sales to Assets
o The ratio of net sales to assets for Lincoln

2014 2013
Net sales RM1,498,000 RM1,200,000
Total assets:
Beginning of year RM1,053,000 RM1,010,000
End of year 1,044,500 1,053,000
Total RM2,097,500 RM2,063,000
Average (Total ÷ 2) RM1,048,750 RM1,031,500
Excludes long-term investments
(continued)
Ratio of Net Sales to Assets
o The ratio of net sales to assets for Lincoln

2014 2013
Net sales RM1,498,000 RM1,200,000
Total assets:
End of year 1,044,500 1,053,000
Total RM2,097,500 RM2,063,000
Ratio of net sales to assets 1.4 1.2

RM1,498,000 RM1,200,000
RM1,048,750 RM1,031,500
Net Sales to Assets

Net sales RM2,250,000
Average total assets 1,500,000
Determine the ratio of net sales to assets.
Ratio of Net Sales to Assets =

Net Sales ÷ Average Total Assets
Ratio of Net Sales to Assets = RM2,250,000 ÷ RM1,500,000
Ratio of Net Sales to Assets = 1.5
2- Rate Earned on Total Assets
o The rate earned on total assets measures the

profitability of total assets, without considering
how the assets are financed.
net profit + Interest Expense
Rate Earned on Total Assets =
Average Total Assets
Rate Earned on Total Assets
o This ratio for Lincoln Company is computed
below. Total assets are RM1,187,500 at the
beginning of 2013.
2014 2013
net profit RM 91,000 RM 76,500
Plus interest expense 6,000 12,000
Total RM 97,000 RM 88,500
Total assets:
End of year 1,139,500 1,230,500
Total RM2,370,000 RM2,418,000
Rate earned on total assets 8.2% 7.3%

RM97,000 RM88,500
RM1,185,000 RM1,209,000
Rate Earned on Total Assets
A company reports the following statement of

comprehensive income and statement of
financial position information for the current
year:
Net profit RM 125,000
Interest expense 25,000
Average total assets 2,000,000
Determine the rate earned on total assets.

(Net Profit + Interest Expense) ÷ Average Total Assets

(RM125,000 + RM25,000) ÷ RM2,000,000
Rate Earned on Total Assets = RM150,000 ÷ RM2,000,000
Rate Earned on Total Assets = 7.5%
3- Rate Earned on Equity
o The rate earned on equity measures the rate of

income earned on the amount invested by the
shareholders.
Rate Earned on Equity = Net Profit
Average Total Equity
Rate Earned on Equity
o The rate for Lincoln Company is computed
below. Total equity is RM750,000 at the
beginning of 2013.
2014 2013
Net Profit RM 91,000 RM 76,500
Equity:
End of year 829,500 787,500
Total RM1,617,000 RM1,537,500
Rate earned on shareholders’

equity 11.3% 10.0%
RM91,000 RM76,500
RM808,500 RM768,750
4- Rate Earned on Common Equity
o The rate earned on common equity measures

the rate of profits earned on the amount
invested by the common shareholders.
Rate Earned on Net Profit – Preference Dividends

Common Equity = Average Common Equity
Rate Earned on Common equity
o Lincoln Company had RM150,000 of 6%
preference share outstanding on December 31,
2014 and 2013. Thus, preference dividends of
RM9,000 (RM150,000 × 6%) are deducted from
net profit. Lincoln’s common equity is
determined as follows:
(continued)
Rate Earned on Common equity
2014 2013
Net profit RM 91,000 RM 76,500
Less preferred dividends 9,000 9,000
Total RM 82,000 RM 67,500
Common equity:
End of year 679,500 637,500
Total RM1,317,000 RM1,237,500
Rate earned on common

equity 12.5% 10.9%
RM82,000 RM67,500
RM658,500 RM618,750
Common Shareholders’ Profitability Analysis

Net profit RM 125,000
Preference dividends 5,000
Average equity 1,000,000
Average common equity 800,000
Determine (a) the rate earned on equity and (b)

the rate earned on common equity.
a. Rate Earned on Equity = Net Profit ÷ Average Equity

Rate Earned on Equity = RM125,000 ÷ RM1,000,000
Rate Earned on Equity = 12.5%
b. Rate Earned on Common Equity = (Net Profit –

Preference Dividends) ÷ Average Common Equity
Rate Earned on Common Equity =
(RM125,000 – RM5,000) ÷ RM800,000
Rate Earned on Common Equity = 15%
5- Earnings per Share on Ordinary Share
o Earnings per share (EPS) on ordinary share

measures the share of profits that are earned
by a share of ordinary share. GAAP requires
the reporting of earnings per share in the
statement of comprehensive income.
Earnings per Share (EPS) Net Profit – Preference Dividends

on Ordinary Share =
Shares of Ordinary Share
Outstanding
Earnings per Share on Ordinary Share
o EPS for Lincoln Company is computed below.

2014 2013
net profit RM91,000 RM76,500
Less preferred dividends 9,000 9,000
Total RM82,000 RM67,500
Shares of ordinary share 50,000 50,000
Earnings per share on ordinary share RM1.64 RM1.35
RM82,000 RM67,500
50,000 50,000
6- Price-Earnings Ratio
o Another profitability measure quoted by the

financial press is the price-earnings (P/E) ratio
on ordinary share. The price-earnings ratio on
ordinary share measures a company’s future
earnings prospects.
o The price-earnings ratio is computed as
follows:
Market Price per Share of
Ordinary Share
Price-earnings (P/E) ratio =
Earnings per Share on
Ordinary Share
Price-Earnings Ratio
o The P/E ratio for Lincoln Company is

computed below.
2014 2013
Market price per share of
ordinary share RM41.00 RM27.00
Earnings per share on
ordinary share ÷ RM1.64÷ RM1.35
Price-earnings ratio on
ordinary share 25 20
Earnings per Share and Price-Earnings Ratio

Net profit RM250,000
Preference dividends RM15,000
Number of ordinary share outstanding
20,000
Market price per share of ordinary share
RM35.25
a. Determine the company’s earnings per
ordinary share.
b. Determine the company’s price-earnings
ratio. Round to one decimal place.
a. Earnings per Share on Ordinary Share = (Net Profit –
Preference Dividends) ÷ Number of Ordinary Share
Outstanding
Earnings per Share = (RM250,000 – RM15,000) ÷
20,000
Earnings per Share = RM11.75
b. Price-Earnings Ratio = Market Price per Share of

Ordinary Share ÷ Earnings per Share on Ordinary
Share
Price-Earnings Ratio = RM35.25 ÷ RM11.75
Price-Earnings Ratio = 3.0
7- Dividends per Share
o Dividends per share can be reported with

earnings per share to indicate the relationship
between dividends and earnings.
o Comparing these two per-share amounts
measures the extent to which earnings are
being distributed to common shareholders.
The ratio for dividends per share is at the top
of the next slide.
(continued)
Dividends per Share
o The dividends per share for Lincoln Company

are computed below.
Dividends
Dividends per Share =
Shares of Ordinary Share
Outstanding
2014 2013
Dividends on ordinary share RM40,000 RM30,000
Shares of ordinary share outstanding ÷ 50,000 ÷ 50,000
Dividends per share of ordinary share RM0.80 RM0.60
8- Dividend Yield
o The dividend yield on ordinary share

measures the rate of return to ordinary
shareholders from cash dividends.
o It is of special interest to investors whose
objective is to earn dividends from their
investment. It is computed as follows:
Dividends per Share of
Ordinary Share
Dividend Yield =
Market Price per Share of
Ordinary Share
Dividend Yield
o The dividend yield for Lincoln Company is

computed below.
2014 2013
Dividends per share of
ordinary share RM 0.80 RM 0.60
Market price per share of
ordinary share RM41.00 RM27.00
Dividend yield on ordinary share 2.0% 2.2%
RM0.80 RM0.60
RM41 RM27
SUMMARY OF ANALYTICAL MEASURES
(continued)
SUMMARY OF ANALYTICAL MEASURES
End of Topic 7
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2007

Topic 7 A181 - Financial Statement Analysis

Hochgeladen von

Dokumentinformationen

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Topic 7 A181 - Financial Statement Analysis

Hochgeladen von

Copyright:

Verfügbare Formate

Chapter 6

1. Describe basic financial statement analytical

o Users analyze a company’s financial

o The percentage analysis of increases and

The comparative cash and accounts receivable

Dec. 31, 2014 Dec. 31, 2013

Based on this information, what is the amount and

Cash RM12,500 increase

Accounts receivable RM5,600 decrease

oA percentage analysis used to show the

Current Assets RM550,000

o In a vertical analysis of the statement of

Statement of comprehensive income information

Prepare a vertical analysis of the statement of

o In a common-sized statement, all items are

o All users of financial statements are interested

o Solvency analysis focuses on the ability of a

o A company’s ability to pay its current liabilities

o The excess of current assets over current

Working Capital = Current Assets – Current Liabilities

o The current ratio, sometimes called the

o The current ratio for Lincoln Company is

o A ratio that measures the “instant” debt-paying

Quick assets are cash

o The quick ratio for Lincoln Company is

Quick assets: 2014 2013

a. Current Ratio = Current Assets ÷ Current Liabilities

b. Quick Ratio = Quick Assets ÷ Current Liabilities

o The relationship between sales and accounts

o The accounts receivable turnover for Lincoln

Accounts receivable turnover 12.7 9.2

o The number of days’ sales in receivables is an

Number of days’ sales in receivables 28.6 39.5

A company reports the following:

b. Number of Days’ Sales in Receivables = Average

o The relationship between the volume of goods

Cost of Goods Sold

o Lincoln’s inventory balance at the beginning of

Inventory turnover 3.8 2.8

o The number of days’ sales in inventory is a

Number of Days’ Average Inventory

Average Inventory RM273,500 RM297,000

Average Inventory RM273,500 RM297,000

Number of days’ sales in inventory 95.7 132.2

A company reports the following:

b. Number of Days’ Sales in Inventory = Average

o The ratio of PP&E to non-current liabilities is a

Ratio of PP&E to PP&E (net)

o To illustrate, the ratio of PP&E to non-current

o The relationship between the total claims of

Ratio of Liabilities to Total Liabilities

o The ratio of liabilities to equity for Lincoln

Determine the company’s (a) ratio of PP&E to

a. Ratio of PP&E to Non-Current Liabilities =

b. Ratio of Liabilities to Total Equity =

o Corporations in some industries normally have

o The number of times interest charges are

Number of times interest

o The number of times interest charges are

A company reports the following:

Determine the number of times interest charges

Number of Times Interest Charges Are Earned =

Number of Times Interest Charges Are Earned =