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
=Â 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 […]
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June 17, 2008
June 16, 2008
June 12, 2008


