Exercise 1
Performing horizontal analysis-income statement
Data for McCormick Designs, Inc. follow:
|
MCCORMICK DESIGNS, INC.
Comparative Income Statement
Years Ended December 31, 2016 and 2015
|
|
|
2016
|
2015
|
|
Net Sales Revenue
|
$ 431,250
|
$ 373,000
|
|
Expenses:
|
|
|
|
Cost of Goods Sold
|
202,000
|
189,000
|
|
Selling and Administrative Expenses
|
100,050
|
92,550
|
|
Other Expenses
|
8,000
|
2,150
|
|
Total Expenses
|
310,050
|
283,700
|
|
Net Income
|
5121,200
|
$ 89,300
|
Instructions
1. Prepare a horizontal analysis of the comparative income statement of McCormick Designs, Inc. Round percentage changes to one decimal place.
2. Why did 2016 net income increase by a higher percentage than net sales revenue?
Exercise 2
Performing vertical analysis of a balance sheet
Tri Designs, Inc. has the following data:
|
TRI DESIGNS, INC.
Comparative Balance Sheet
December 31, 2016 and 2015
|
|
Assets
|
2016
|
2015
|
|
Total Current Assets
|
$ 54,950
|
$ 72,250
|
|
Property, Plant, and Equipment, Net
|
250,250
|
158,950
|
|
Other Assets
|
44,800
|
57,800
|
|
Total Assets
|
$ 350,000
|
$ 289,000
|
|
Liabilities
|
|
|
|
Total Current Liabilities
|
$ 49,700
|
$ 47,685
|
|
Long-term Debt
|
118,300
|
196,520
|
|
Total Liabilities
|
168,000
|
244,205
|
|
Stockholders' Equity
|
|
|
|
Total Stockholders' Equity
|
182,000
|
44,795
|
| Total Liabilities and Stockholders' Equity |
$ 350,000
|
$ 289,000
|
Perform a vertical analysis of Tri Designs's balance sheet for each year.
Exercise 3
Computing key ratios
The financial statements of Victory's Natural Foods include the following items:
Compute the following ratios for the current year:
|
|
Current Year
|
Preceding Year
|
|
Balance Sheet:
|
|
|
|
Cash
|
$ 20,000
|
$ 24,000
|
|
Short-term Investments
|
18,000
|
26,000
|
|
Net Accounts Receivable
|
50,000
|
78,000
|
|
Merchandise Inventory
|
70,000
|
66,000
|
|
Prepaid Expenses
|
12,000
|
10,000
|
|
Total Current Assets
|
170,000
|
204,000
|
|
Total Current Liabilities
|
129,000
|
92,000
|
|
Income Statement:
|
|
|
|
Net Credit Sales
|
$ 478,000
|
|
|
Cost of Goods Sold
|
318,000
|
|
1. Current ratio
2. Cash ratio
3. Acid-test ratio
4. Inventory turnover
5. Days' sales in inventory
6. Days' sales in receivables
7. Gross profit percentage (assume all sales are on credit)