Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Textbook Question
Chapter 3, Problem 3.27P
Learning Goal 6
P3-27 Complete ratio analysis, recognizing significant differences Home Health Inc. has come to Jane Ross for a yearly financial checkup. As a first step, Jane has prepared a complete set of ratios for fiscal years 2018 and 2019. She will use them to look for significant changes in the company's situation from one year to the next.
Home Health Inc. Financial Ratios
| Ratio | 2018 | 2019 |
| Current ratio | 3.25 | 3.00 |
| Quick ratio | 2.50 | 2.20 |
| Inventory turnover | 12.80 | 10.30 |
| Average collection period | 42.6 days | 31.4 days |
| Total asset turnover | 1.40 | 2.00 |
| Debt ratio | 0.45 | 0.62 |
| Times interest earned ratio | 4.00 | 3.85 |
| Gross profit margin | 68% | 65% |
| Operating profit margin | 14% | 16% |
| Net profit margin | 8.3% | 8.1% |
| 11.6% | 16.2% | |
| 21.1% | 42.6% | |
| Price/earnings ratio | 10.7 | 9.8 |
| Market/book ratio | 1.40 | 1.25 |
- a. To focus on the degree of change, calculate the year-to-year proportional change by subtracting the year 2018 ratio from the year 2019 ratio and then dividing the difference by the year 2018 ratio. Multiply the result by 100. Preserve the positive or negative sign. The result is the percentage change in the ratio from 2018 to 2019. Calculate the proportional change for the ratios shown here.
- b. For any ratio that shows a year-to-year difference of 10% or more, state whether the difference is in the company’s favor or not.
- c. For the most significant changes (25% or more), look at the other ratios and cite at least one other change that may have contributed to the change in the ratio you are discussing.
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OBJECTIVE: To enable learners to utilize financial ratios as a mechanism to evaluate the firm's financial
performance and identify areas for making decisions for improvement
REQUIREMENT: Financial Statement Analysis
Question
Refer to the following financial statements of Delima Corporation for 2019 and 2020:
Delima Corporation
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Income tax expense
502
Net income
1,240
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31 December (in millions)
2020
2019
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$460
$444
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1,188
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Problem 1: Viance Queen Company
Required:
Compute for the company’s profitability and operating efficiency ratios for 2019
Compute for the financial health ratios of the company for 2019
B.Operating Efficiency
Days in Inventory
AR Turnover
Days in AR
You have been hired as a financial analyst of a firm and your team is working on an
independent assessment of XYZ Inc. Your assistant has provided you with the following
data for XYZ Inc. and their industry.
R
r
e
d
:
Ratio 2020 2019 2018
2020-
Industry
Average
Inventory Turnover 62.65 42.42 32.25 53.25
Receivables in days 94 63 50 115
Debt to Equity 0.75 0.85 0.90 0.88
Quick Ratio 1.028 1.03 1.029 1.031
Current Ratio 1.33 1.21 1.15 1.25
Required:
a) In annual report of firm CEO wrote, we had higher liquidity largely due to an increase in highly liquid current assets (cash, account receivable and short-term marketable securities). Is the CEO correct?
b) what can you say about the firm's collection period and inventory turnover?
Chapter 3 Solutions
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Ch. 3.1 - Prob. 3.1RQCh. 3.1 - Describe the purpose of each of the four major...Ch. 3.1 - Prob. 3.3RQCh. 3.1 - Prob. 3.4RQCh. 3.2 - With regard to financial ratio analysis, how do...Ch. 3.2 - What is the difference between cross-sectional and...Ch. 3.2 - Prob. 3.7RQCh. 3.2 - Prob. 3.8RQCh. 3.3 - Under what circumstances would the current ratio...Ch. 3.3 - In Table 3.5, most of the specific firms listed...
Ch. 3.4 - To assess the firms average collection period and...Ch. 3.5 - What is financial leverage?Ch. 3.5 - What ratio measures the firms degree of...Ch. 3.6 - What three ratios of profitability appear on a...Ch. 3.6 - Prob. 3.15RQCh. 3.6 - Prob. 3.16RQCh. 3.7 - What do the price/earnings (P/E) ratio and the...Ch. 3.8 - Financial ratio analysis is often divided into...Ch. 3.8 - Prob. 3.19RQCh. 3.8 - What three areas of analysis are combined in the...Ch. 3 - For the quarter ended January 28, 2017, Kroger...Ch. 3 - Learning Goals 3, 4, 5 ST3-1 Ratio formulas and...Ch. 3 - Prob. 3.2STPCh. 3 - Prob. 3.1WUECh. 3 - Learning Goal 1 E3-2 Explain why the income...Ch. 3 - Prob. 3.3WUECh. 3 - Learning Goal 3 E3-4 Bluestone Metals Inc. is a...Ch. 3 - Learning Goal 6 E3-5 If we know that a firm has a...Ch. 3 - Financial statement account identification Mark...Ch. 3 - Learning Goal 1 P3-2 1ncome statement preparation...Ch. 3 - Prob. 3.3PCh. 3 - Learning Goal 1 P3-4 Calculation of EPS and...Ch. 3 - Prob. 3.5PCh. 3 - Prob. 3.6PCh. 3 - Learning Goals 1 P3-7 Initial sale price of common...Ch. 3 - Prob. 3.8PCh. 3 - Learning Goal 1 P3-9 Changes In stockholders...Ch. 3 - Learning Goals 2, 3, 4, 5 P3-10 Ratio comparisons...Ch. 3 - Learning Goal 3 P3-11 Liquidity management Bauman...Ch. 3 - Prob. 3.12PCh. 3 - Inventory management Three companies that compete...Ch. 3 - Accounts receivable management The table below...Ch. 3 - Prob. 3.15PCh. 3 - Learning Goal 4 P3-16 Debt analysis Springfield...Ch. 3 - Prob. 3.17PCh. 3 - Learning Goals 2, 3, 4 P3-18 Using Tables 3.1,...Ch. 3 - Learning Goals 5 P3-19 Common-size statement...Ch. 3 - The relationship between financial leverage and...Ch. 3 - Learning Goal 4 P3-21 Analysis of debt ratios...Ch. 3 - Learning Goal 6 P3-22 Ratio proficiency McDougal...Ch. 3 - Learning Goal 6 P3-23 Cross-sectional ratio...Ch. 3 - Learning Goal 6 P3-24 Financial statement analysis...Ch. 3 - Learning Goals 6 P3- 25 Integrative: Complete...Ch. 3 - Learning Goal 6 P3-26 DuPont system of analysis...Ch. 3 - Learning Goal 6 P3-27 Complete ratio analysis,...Ch. 3 - Spreadsheet Exercise The income statement and...
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