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    Financial Remediation Spreadsheets

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    Within the spreadsheet:

    The following ratios are incorrect and require revision:

    Inventory turnover - 5.3
    Accounts receivable turnover - 31.0
    Day's sales in receivables - 11.8
    Debt ratio - 29.73
    Rate of return on net sales - 6.65
    Rate of return on total assets - 15.12
    Rate of return on stockholder's equity - 20.26
    Earnings per share - 1.14
    Price earnings ratio - 5.03
    Book value per share - 5.87

    The following figures remain inaccurate in the Change column:

    Cash and cash equivalents
    Short term investments
    Accounts receivable, net
    Sales and income taxes payable
    Treasury stock

    Within the memo document:

    For the following ratios, the memo does not appear to provide an indication of strength, weakness, or satisfactory:

    Debt ratio
    Times interest earned
    Rate of return on total assets
    Earnings per share

    Update the justifications based on changes made:

    For all 13 ratios, please provide a clearer explanation for whether the ratio lies above or below the first, second, and third industry quartiles. Note that an average is not equivalent to the second quartile.

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    Solution Preview

    There are four things that you have to do to resolve the issues in this financial report.

    First, recalculate the erroneous figures in the change column (located at H18 through H79 on the spreadsheet). This can be easily done by subtracting the 2011 figures from the 2012 figures for:

    Cash and cash equivalents
    Short term investments
    Accounts receivable, net
    Sales and income taxes payable
    Treasury stock

    Second, recalculate the erroneous ratios using the new spreadsheet figures, which can be done by using these formulas below.

    Remember that with the change of some of the figures above, many of the numbers that you have to calculate may also change. If the spreadsheet that you have is properly formatted, the changes would automatically take place when you refresh the spreadsheet. You might want to copy or print out the original spreadsheet to compare and see if the changes in the figures take place.

    Some definition formulas are ...

    Solution Summary

    This solution describes corrections made to a financial statement based on the ratios involved. The corrections include cash and cash equivalents, short term investments, accounts receivable, net sales and income taxes payable, and treasury stock.