Share
Explore BrainMass

Effect of Transactions on Various Financial Ratios

Effect of transactions on various financial ratios

Indicate the effect that each transaction/event listed here will have on the financial ratio listed opposite it, and provide an explanation for your answer. Use + for increase, - for decrease, and (NE) for no effect. Assume that current assets exceed current liabilities in all cases, both before and after the transaction/event.

See attached for remainder of questions.

Attachments

Solution Preview

11.3
Effect of transactions on various financial ratios
Indicate the effect that each transaction/event listed here will have on the financial ratio listed opposite it, and provide an explanation for your answer. Use + for increase, - for decrease, and (NE) for no effect. Assume that current assets exceed current liabilities in all cases, both before and after the transaction/event.
Transaction/Event Financial Ratio
A) Split the common stock 2 for 1 Book value per share of common stock (No effect-NE)
There will be no impact on book value per share as the stock split only affects the number of shares and it doesn't affect the value of the share.

B) Collected accounts receivable Number of days' sales in accounts receivable (- decrease)
Number of Days' sales= Accounts receivable/Daily Sales.
There will be decline due to decline in value of receivables.
C) Issued common stock for cash Total asset turnover (- decrease)
Total Asset turnover= Sales/Assets
This will decrease in Asset turnover due to increase in Assets (Cash).

D) Sold treasury stock Return on equity (+ ...

Solution Summary

Response provides guidance on effect of transactions on various financial ratios.

$2.19