Cornerstones of Financial Accounting
4th Edition
ISBN: 9781337690881
Author: Jay Rich, Jeff Jones
Publisher: Cengage Learning
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Textbook Question
Chapter 12, Problem 91PSB
Comparing Financial Ratios
Presented below are selected ratios for four firms. Tweeter is a distiller. Clinton is a jewelry retailer, Smith is an airline, and Orlando is a hotel chain.
Required:
1. CONCEPTUAL CONNECTION Explain why the long-term debt to equity ratio is so much higher for the airline and hotel chain than it is for the distiller and jewelry retailer.
2. CONCEPTUAL CONNECTION Explain why the turnover ratios vary so much among the four firms.
3. CONCEPTUAL CONNECTION Explain why the return on equity for the airline and hotel chain is higher than for the distiller and jewelry retailer when their operating income and net income percentages are considerably smaller.
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Students have asked these similar questions
Interpreting liquidity and activity ratios The table, shows key financial data for three firms that compete in the consumer products market: Procter & Gamble, Colgate-Palmolive, and Clorox.
a. Calculate each of the following ratios for all three companies: current ratio, quick ratio, inventory turnover, average collection period, total asset turnover.
b. What company is in the position of having greatest liquidity?
c. Would you say that the three companies exhibit similar performance or quite different performance in terms of collecting receivables? Why do you think that might be?
d. Which company has the most rapid inventory turnover? Which company appears to be least efficient in terms of total asset turnover? Are your answers to those questions a little surprising? If a company is best at inventory turnover and worst at total asset turnover, what do
you think that means?
a. For the three companies, the current ratios are: (Round to three decimal places.)
Colgate-Palmolive
Current…
Sales
Cost of goods sold
Receivable
Inventory
Procter & Gamble
$65,235
32,973
4,732
4,795
25,568
28,901
117,030
Total current assets
Total current liabilities
Total assets
(Note: All dollar values are in thousands.)
Colgate-Palmolive
$15,208
6,077
1,415
1,173
4,348
3,291
12,134
Clorox
$5,873
3,227
517
500
1,544
2,043
4,579
Sargassum Caribbean Incorporated
Balance Sheet as at December 31, 2020
Assets
Liabilities
Current Assets:
Current Liabilities:
Cash
Accounts Payable
600,000
300,000
200,000
400,000 Notes Payable
900,000
1,500,000 Total Current Liabilities
Accounts Receivable
Inventory
Total Current Assets
900,000
Fixed Assets:
Long-Term Liabilities:
Property, Plant & Equipment
Less: Accumulated Depreciation
1,200,000 Long-Term Debt
1,000,000 Total Long Term Liabilities
200,000
300,000
300,000
Net Fixed Assets
Owners' Equity:
Common Stock ($1 Par)
Capital Surplus
Retained Earnings
Total Owners' Equity
100,000
300,000
100,000
500,000
Total Assets
1,700,000 Total Liabilities & Owners'
Equity
1,700,000
Sargassum Caribbean Incorporated
Income Statement for Year Ending December 31, 2020
Sales
2,500,000
800,000
100,000
104,000
1,496,000
Less: Cost of Goods Sold
Less: Administrative Expenses
Less Depreciation
Earnings Before Interest and
Тахes
Less: Interest Expense
20.000
1,476,000
663,000
813,000
417,000…
Chapter 12 Solutions
Cornerstones of Financial Accounting
Ch. 12 - Describe how some of the primary groups of users...Ch. 12 - Prob. 2DQCh. 12 - Prob. 3DQCh. 12 - Prob. 4DQCh. 12 - Prob. 5DQCh. 12 - Prob. 6DQCh. 12 - Prob. 7DQCh. 12 - Prob. 8DQCh. 12 - Prob. 9DQCh. 12 - Prob. 10DQ
Ch. 12 - Prob. 11DQCh. 12 - 12. Why are higher asset turnover ratios...Ch. 12 - Prob. 13DQCh. 12 - Prob. 14DQCh. 12 - Prob. 15DQCh. 12 - Prob. 16DQCh. 12 - Which of the following use financial statement...Ch. 12 - Prob. 2MCQCh. 12 - Prob. 3MCQCh. 12 - Prob. 4MCQCh. 12 - Prob. 5MCQCh. 12 - Prob. 6MCQCh. 12 - Prob. 7MCQCh. 12 - Which type of analysis compares a single...Ch. 12 - Which of the following types of analysis compares...Ch. 12 - Which of the following types of analysis is...Ch. 12 - Prob. 11MCQCh. 12 - Prob. 12MCQCh. 12 - Prob. 13MCQCh. 12 - Partial information from Fabray Companys balance...Ch. 12 - Hummel Inc. has $30,000 in current assets and...Ch. 12 - Prob. 16MCQCh. 12 - A firms quick ratio is typically computed as: a....Ch. 12 - Prob. 18MCQCh. 12 - Prob. 19MCQCh. 12 - Prob. 20MCQCh. 12 - Prob. 21MCQCh. 12 - Prob. 22MCQCh. 12 - Prob. 23MCQCh. 12 - When analyzing a companys debt to equity ratio,...Ch. 12 - Prob. 25MCQCh. 12 - Prob. 26MCQCh. 12 - Prob. 27MCQCh. 12 - Prob. 28MCQCh. 12 - Prob. 29MCQCh. 12 - Prob. 30MCQCh. 12 - Which of the following ratios is used to measure...Ch. 12 - Prob. 32MCQCh. 12 - Selected information for Berry Company is as...Ch. 12 - Which of the following ratios is used to measure a...Ch. 12 - Prob. 35MCQCh. 12 - Prob. 36MCQCh. 12 - Prob. 37MCQCh. 12 - Prob. 38MCQCh. 12 - Which of the following are not part of common...Ch. 12 - Prob. 40MCQCh. 12 - Prob. 41MCQCh. 12 - Prob. 42MCQCh. 12 - Which of the following is not included in the...Ch. 12 - When a Dupont analysis reveals that a company has...Ch. 12 - Prob. 45MCQCh. 12 - Cross Sectional Analysis Cross sectional analysis...Ch. 12 - Prob. 47CECh. 12 - Prob. 48CECh. 12 - Short-Term Liquidity Ratios Three ratios...Ch. 12 - Debt Management Ratios Selected data from the...Ch. 12 - Debt Management and Short-Term Liquidity Ratios...Ch. 12 - Asset Efficiency Ratios Selected financial...Ch. 12 - Profitability Ratios The following data came from...Ch. 12 - Prob. 54CECh. 12 - Prob. 55CECh. 12 - Prob. 56CECh. 12 - Prob. 57BECh. 12 - Prob. 58BECh. 12 - Prob. 59BECh. 12 - Short-Term Liquidity Ratios Larry, Curly, and Moe...Ch. 12 - Debt Management Ratios Glow Corporation provides...Ch. 12 - Debt Management and Short-Term Liquidity Ratios...Ch. 12 - Asset Efficiency Ratios Rumsford Inc.s financial...Ch. 12 - Prob. 64BECh. 12 - Profitability Ratios Tinker Corporation operates...Ch. 12 - Profitability Ratios Katrina Corp. is a publicly...Ch. 12 - Prob. 67BECh. 12 - Prob. 68ECh. 12 - Prob. 69ECh. 12 - Prob. 70ECh. 12 - Prob. 71ECh. 12 - Horizontal Analysis of Income Statements...Ch. 12 - Prob. 73ECh. 12 - Prob. 74ECh. 12 - Prob. 75ECh. 12 - Prob. 76ECh. 12 - Prob. 77ECh. 12 - Prob. 78ECh. 12 - Prob. 79ECh. 12 - Asset Efficiency Ratios Refer to financial...Ch. 12 - Prob. 81ECh. 12 - Prob. 82ECh. 12 - Prob. 83ECh. 12 - Prob. 84PSACh. 12 - Prob. 85PSACh. 12 - Prob. 86PSACh. 12 - A Using Common Size Statements The following...Ch. 12 - Prob. 88PSACh. 12 - Prob. 89PSACh. 12 - Prob. 90PSACh. 12 - A Comparing Financial Ratios Presented below are...Ch. 12 - A Preparation of Ratios Refer to the financial...Ch. 12 - Accounting Alternatives and Financial Analysis...Ch. 12 - Prob. 84PSBCh. 12 - Prob. 85PSBCh. 12 - Prob. 86PSBCh. 12 - Prob. 87PSBCh. 12 - Prob. 88PSBCh. 12 - Prob. 89PSBCh. 12 - Prob. 90PSBCh. 12 - Comparing Financial Ratios Presented below are...Ch. 12 - Prob. 92PSBCh. 12 - Problem 1 2-93B Accounting Alternatives and...Ch. 12 - Prob. 94CCh. 12 - Prob. 95.1CCh. 12 - Prob. 95.2CCh. 12 - Prob. 96.1CCh. 12 - Prob. 96.2CCh. 12 - Prob. 97.1CCh. 12 - Prob. 97.2CCh. 12 - Prob. 97.3CCh. 12 - Prob. 97.4CCh. 12 - Analyzing Growth Consolidated financial statements...Ch. 12 - Analyzing Growth Consolidated financial statements...Ch. 12 - Prob. 98.1CCh. 12 - Prob. 98.2CCh. 12 - Prob. 98.3CCh. 12 - CONTINUING PROBLEM: FRONT ROW ENTERTAINMENT The...Ch. 12 - Prob. 99.2CCh. 12 - Prob. 99.3CCh. 12 - Prob. 99.4CCh. 12 - Prob. 99.5C
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