accounting to managers 2
Ratio Analysis: Decision FocusLO1, 2, 4, 5, 6
Avantronics is a manufacturer of electronic components and accessories that has total assets of $20,000,000. Selected financial ratios for Avantronics and the industry averages for firms of similar size are as follows:
|Year 1||Year 2||Year 3|
Avantronics is being reviewed by several entities whose interests vary, and the company’s financial ratios are a part of the data being considered. Each of the following parties must recommend an action based on its evaluation of Avantronics’s financial position:
MidCoastal Bank. The bank is processing Avantronics’s application for a new five-year term note. MidCoastal has been the banker for Avantronics for several years but must reevaluate the company’s financial position for each major transaction.
Ozawa Company. Ozawa is a new supplier to Avantronics and must decide on the appropriate credit terms to extend to the company.
Drucker & Denon. A brokerage firm specializing in the stock of electronics firms that are sold over the counter, Drucker & Denon must decide whether it will include Avantronics in a new fund being established for sale to Drucker & Denon’s clients.
Working Capital Management Committee. This is a committee of Avantronics’s management personnel chaired by the chief operating officer. The committee is responsible for periodically reviewing the company’s working-capital position, comparing actual data against budgets, and recommending changes in strategy as needed.
- Describe the analytical use of each of the five ratios presented in the chart.
- For each of the four entities described, identify the financial ratios, from those ratios presented, that would be most valuable as a basis for its decision regarding Avantronics.
- Discuss what the financial ratios presented in the question reveal about Avantronics. Support your answer by citing specific ratio levels and trends, as well as the interrelationships among these ratios.
- Horizontal AnalysisLO2
- Following are the income statements for Martha’s Miscellaneous for Year 1 and Year 2:
|Martha’s Miscellaneous Comparative Statements of Income and Retained Earnings|
|Year 2||Year 1||Change||Change|
|Cost of goods sold||500,000||455,000|
|Payroll expense||$ 50,000||$ 42,250|
|Operating income||$ 67,000||$ 90,750|
|Gain on vehicle sale||25,000||—|
|Loss on sale of securities||(25,000)||—|
|Net income before interest and taxes||$135,000||$135,750|
|Net income||$ 95,000||$ 95,500|
|Total retained earnings||$ 57,000||$ 57,500|
|Retained earnings, 1/1||193,500||136,000|
|Retained earnings, 12/31||$250,500||$193,500|
- Complete the comparative income statement by computing dollar change ($ change) and percentage change (% change).
Comprehensive Ratio AnalysisLO4, 5, 6
The 2012 financial statements for the Griffin Company are as follows:
|Griffin Company Statement of Financial Position|
|Cash||$ 40,000||$ 10,000|
|Property, plant, and equipment||250,000||257,000|
|Liabilities and Stockholders’ Equity|
|Current liabilities||$ 60,000||$ 50,000|
|5% mortgage payable||120,000||162,000|
|Common stock (30,000 shares)||150,000||150,000|
|Total liabilities and stockholders’ equity||$430,000||$392,000|
|Griffin Company Income Statement For the Year Ended December 31, 2012|
|Sales on account||$420,000|
|Cost of goods sold||$214,000|
|Income before taxes||$140,000|
|Income tax expense (50%)||70,000|
|Net income||$ 70,000|
Compute the following ratios for the Griffin Company for the year ending December 31, 2012:
- Profit margin ratio (before interest and taxes)
- Total asset turnover
- Rate of return on total assets
- Rate of return on common stockholders’ equity
- Earnings per share of stock
- Inventory turnover
- Current ratio
- Quick ratio
- Accounts receivable turnover
- Debt-to-equity ratio
- Times interest earned
Adjustments to Income via the Indirect Method: Operating ActivitesLO1, 2, 3
The following account balances are for the noncash current assets and current liabilities of Wynn Bicycle Company at the end of 2011 and 2012.
|Accounts receivable||$ 4,000||$ 6,000|
|Salaries and wages payable||2,500||4,000|
|Income taxes payable||5,500||2,500|
In addition, the income statement for 2012 is as follows:
|Cost of goods sold||85,000|
|Gross profit||$ 25,000|
|General and administrative expense||$ 9,000|
|Income before interest and taxes||$ 14,000|
|Income before tax||$ 12,000|
|Income tax expense||4,800|
|Net income||$ 7,200|
- Prepare the operating activities section of the statement of cash flows, using the indirect method.
- What does the use of the direct method reveal about a company that the indirect method does not?
Are you looking for a similar paper or any other quality academic essay? Then look no further. Our research paper writing service is what you require. Our team of experienced writers is on standby to deliver to you an original paper as per your specified instructions with zero plagiarism guaranteed. This is the perfect way you can prepare your own unique academic paper and score the grades you deserve.
Use the order calculator below and get started! Contact our live support team for any assistance or inquiry.[order_calculator]