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PFM3023 Tsest 1 Financial Analysis
Account (AA101)
Kolej Poly-Tech MARA BANGI
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TEST - FINANCIAL MANAGEMENT
PFM3023- SEM1/SESION 2020/21 ( 30/11/2020)
Q 1
Nelson’s Corporation has issued common stock only. The company has been successful and has a gross profit rate of 20%. The information shown below was taken from the company's financial statements. Beginning inventory $482, Purchases 4,836, Ending inventory? Average accounts receivable 800, Average common stockholders' equity 3,500, Sales (all on credit) 6,000, Net income 420,
Instructions: Compute the following:
- Receivables turnover
Answer:- Receivable turnover = credit sales/ Average accounts receivable = 6,000,000 / 800, = 7 times
- Average collection period.
Answer: - Average collection period = 365 days/ receivable turnover = 365 days/ 7 times = 48 days.
- Inventory turnover and the average days to sell the inventory.
Answer :- Iventory turnover = cost of goods sold/ average iventory. Ending iventory =?
Beginning iventory 482,
- purchases 4,836, (-) Cost of goods sold (4,800,000) Ending iventory 518,
Gross profit = 20% Cost of goods sold = 80%. 80% x 6,000,000 (sales) = 4,800,
As we know that Ending iventory = 518, Average iventory = (beginning iventory + ending iventory) / 2 =(482,000 + 518,000)/ 2 = 500, Iventory turnover = 4,800,000 / 500,000 = 9 times Days in iventory = 365 days/ 9 times = 38 days.
- Return on common stockholders' equity.
Answer = Net income / average common stockholder’s equity = 420,000 / 3,500, = 12%
- Show how 2 ways to increase inventory turnover
- Proper forecasting Effective marketing
Q Comparative information taken from the Wells Company financial statements is shown below:
2002 2001 (a) Notes receivable $ 20,000 $ -0- (b) Accounts receivable 182,000 140, (c) Retained earnings 30,000 (40,000) (d) Income taxes payable 45,000 20, (e) Sales 900,000 750, (f) Operating expenses 170,000 200,
Instructions Using horizontal analysis, show the percentage change from 2001 to 2002 with 2001 as the base year.
Answer=
a) Notes receivable = Year 2001 is zero so impossible to compute.
Capital stock, $ par 100,000 100, Retained earnings 270,000 252, $500, 0 $490,
All sales were made on account. Cash dividends declared during the year totaled $48,600. Compute the following: a Average accounts receivable turnover $215,000 + $185,000 / 2= 0 times b Book value per share at the end of the current year $______________ c Earnings per share of capital stock $______________ d Return on assets % e Return on common stockholders’ equity is computed by dividing $ ____________ by $______________
Q 4
Cline Corporation had net income of $2,000,000 in 2000. Using 2000 as the base year, net income decreased by 70% in 2001 and increased by 175% in 2002.
Instructions Compute the net income reported by Cline Corporation for 2001 and 2002.
Answer= 2001 = X / $2,000,000 = 70% X = $2,000 x 0 = $1,400, It decrease to $1,400,000 so the net income is $6,000,000 ( $2,000,000 - $1,400,000)
2002 = X / $2,000,000 = 175% X = $2,000,000 x 1 = $3,500, Net income for 2002 is $5,500,000 ($2,000,000 + $3,500,000)
Q 5
The following items were taken from the financial statements of Ritz, Inc., over a four- year period:
Item 2003 2002 2001 2000 Net Sales $800,000 $650,000 $600,000 $500, Cost of Goods Sold 580,000 460,000 420,000 400, Gross Profit $220,000 $190,000 $180,000 $100,
Instructions Using horizontal analysis and 2000 as the base year, compute the trend percentages for net sales, cost of goods sold, and gross profit. Explain whether the trends are favorable or unfavorable for each item.
Answer= Item 2003 2002 2001 2000 Net sales
=($800,000/$500,000)
x 100% = 160%
=($650,000/$500,000)
x 100% 130%
=($600,000/$500,000)
x100% =120%
=($500,000/$500,000)
x 100% = 100% Cost of Goods Sold
=($580,000/$400,000)
x 100% =145%
=($460,000/$400,000)
x 100% =115%
=($420,000/$400,000)
x 100% = 105%
=($400,000/$400,000)
x 100% =100%
Gross profit
=($220,000/$100,000)
x 100% = 220%
=($190,000/$100,000)
x 100% 190%
=($180,000/$100,000)
x 100% = 180%
=($100,000/$100,000)
x 100% = 100%
The net sales is increasing and favourable from year 2000-2003. The cost of goods sold is increasing also every year and it is unfavourable. Lastly, the percentage for gross profit shows that every year increasing and favourable.
END OF QUESTION
PFM3023 Tsest 1 Financial Analysis
Course: Account (AA101)
University: Kolej Poly-Tech MARA BANGI
