Archive about 'Interpretation of Financial Statements'

Table: Summary Of Financial Accounting Ratio Analysis

SUMMARY OF FINANCIAL ACCOUNTING RATIO

PROFITABILITY RATIO:

Financial Ratio
Formula
Measurements

Return on Total Assets
Operating profit before income tax + interest expense/ Average total assets
Measures rate of return earned through operating total assets provided by both creditors and owners

Return on ordinary shareholders’ equity
Operating profit & extraordinary items after income tax minus Preference dividends /  Average ordinary shareholders’ equity
Measures rate of […]

Answer To Accounting Question IFS Test No 4 On Interpretation of Financial Statements

Answer to Accounting Test Question IFS No 4:

Current ratio

Acid-test ratio

Debt to equity ratio

1

Company issued ordinary shares for cash

I

I

D

2

Bought raw material on account

I

D

I

3

Received money from accounts receivable

N

N

N

4

Expiration of prepaid rent

D

N

I

5

Payment of cash dividend

D

D

I

6

Purchase long term investment with cash

D

D

N

7

Sale of fixed assets for cash with no gain or loss

I

I

N

8

Stock write off

D

N

I

9

Refinance […]

Accounting Test Question IFS No 4 : Interpretation Of Financial Statements

Accounting Test Question No IFS 4:
Effect of Management Decisions On Ratios
Require:
Put by letter whether each of the actions listed below will immediately
-increase (I),
-decrease (D) or
-have no effect (N) on the ratios shown.

Current ratio

Acid-test ratio

Debt to equity ratio

1

Company issued ordinary shares for cash

2

Bought raw […]

Answer To Accounting Question IFS Test No 3 On Interpretation of Financial Statements

Answer to Accounting Test Question IFS No 3:
(a) current ratio
= Current asset/current liabilities
= ($200,000+$810,000+$830,000)/$710,000)
= 2.59
(b) acid-test ratio
= (Current assets- inventory)/current liabilities
=($200,000+$810,000)/$710,000
= 1,42
(c) debt to equity ratio
= (Total liabilities)/Shareholders fund
=($710,000+$550,000)/($1,500,000+$1,670,000)
=0.39
(a) times interest earned ratio
=(Net Income+ Interest Expense+ Income Tax)/Interest Expense
=($210,000+$40,000+$150,000)/$40,000
=10 times

Accounting Test Question IFS No 3 : Interpretation Of Financial Statements

Accounting Test Question No IFS 3:
Append below Company XYZ’s Income Statement and Balance Sheet:
Income Statement ($’000)

2005

Net Sales

7,100

Interest expense

40

Income tax expense

150

Net Income

210

Balance Sheet ($’000):-

Assets

2005

Cash

200

Accounts Receivable

810

Inventory

830

Property, plant and equipment ( net)

2,590

Total Assets

4,430

Liabilities & Shareholders’ Equity

Current liabilities

710

Long-term liabilities

550

Paid-in capital

1,500

Retained earnings

1,670

Total Liabilities & Shareholders’ Equity

4,430

Required:
Determine the following ratios for 2005:
(a) current ratio
(b) acid-test ratio
(c) debt to equity ratio
(d) times […]

Answer To Accounting Question IFS Test No 2 On Interpretation of Financial Statements

Answer to Accounting Test Question IFS No 2:
1(a) Profit margin on sales
= Net Income/ Net Sales
= $340,000/$7,050,000
= 4.8%

1(b) Return on Assets (ROA)
= Net Income/(Average Total Assets)/2
=$340,000/($4,430,000+3,990,000)/2
= 8.1%
1(c) Return on Shareholders’ equity
= Net Income/ (Average Total Shareholder fund)/2
=$340,000/($3,170,000+2,360,000)/2
=12.3%

(1) […]

Accounting Test Question IFS No 2 : Interpretation Of Financial Statements

Accounting Test Question No IFS 2:

Append below Company XYZ’s Income Statement and Balance Sheet:
Income Statement ($’000)

2005

2004

Net Sales

7,050

6,200

Net Income

340

410

Balance Sheet ($’000):-

Assets

2005

2004

Current Assets

1,840

1,570

Property, plant and equipment ( net)

2,590

2,420

Total Assets

4,430

3,990

Current Liabilities

1,150

1,190

Long term liabilities

810

440

Paid-in capital

1,500

1,500

Retained earnings

970

860

Required:
(1) Determine the following ratios for 2005:
(a) profit margin […]

Answer To Accounting Question IFS Test No 1 On Interpretation of Financial Statements

Answer to Accounting Test Question IFS No 1:
Inventory turnover ratio
=  Cost of Goods Sold/ Average Inventory Value
= $3,000,000/(830,000+710,000)/2
=$3,000,000/$770,000
= 3.89 times
Receivables turnover ratio
= Net Turnover/(Average Accounts Receivable)
=$7,000,000/($810,000+620,000)/2
= 9.79 times
Therefore,
Average collection period
=365 days/ 9.79
=37.28 days
Asset […]

Accounting Test Question No IFS: Interpretation of Financial Statements

Accounting Test Question No IFS 1 : Interpretation Of Financial Statements

Accounting Test Question No IFS 1:
Details of financial performance of Company XYZ
For year 2005 Income Statement:
Net Sales - $ 7 million,
Cost of Goods sold -$ 3 million
Net Income - $1.2 million
Balance Sheet ($’000):-

Assets

2005

2004

Cash

200

240

Accounts Receivable

810

620

Inventory

830

710

Property, plant and equipment ( net)

2,590

2,420

Total Assets

4,430

3,990

 

 

 

Liabilities & Shareholders’ Equity

 

 

Current liabilities

710

640

Notes payable

550

990

Paid-in […]

Ratio Analysis: Cash Flow Efficiency Ratios

The vein of an organization is the cash flow. In earlier article, we understand that cash flow statement is an integral part of the financial statements.
We can derive useful ratios the cash flow statement so as to assist us to evaluate the cash sufficiency of the entity. When we say cash sufficiency of an entity, we […]