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    Horizontal and Vertical Analysis/Financial Ratios

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    Please see the attached and complete the 2 practice problems in excel.

    Please complete these 2 practice problems in excel.

    1. P13-1A Here are comparative statement data for East Company and West Company, two
    competitors. All balance sheet data are as of December 31, 2007, and December 31, 2006.

    East Company West Company
    2007 2006 2007 2006
    Net sales $1,849,035 $546,000
    Cost of goods sold 1,080,490 238,000
    Operating expenses 230,000 82,000
    Interest expense 6,800 1,600
    Income tax expense 62,030 31,000

    Current assets 325,975 $312,410 83,336 $ 79,467
    Plant assets (net) 526,800 500,000 139,728 125,812
    Current liabilities 66,325 75,815 35,348 30,281
    Long-term liabilities 113,990 90,000 29,620 25,000
    Common stock, $10 par 500,000 500,000 120,000 120,000
    Retained earnings 172,460 146,595 38,096 29,998
    Instructions
    (a) Prepare a vertical analysis of the 2007 income statement data for East Company and
    West Company.
    (b) Comment on the relative profitability of the companies by computing the 2007 return
    on assets and the return on common stockholders' equity ratios for both companies.

    2. P13-2B The comparative statements of Fraggle Rock Company are shown.

    FRAGGLE ROCK COMPANY
    Income Statements
    For the Years Ended December 31

    2007 2006
    Net sales $780,000 $624,000
    Cost of goods sold 440,000 405,600

    Gross profit 340,000 218,400
    Selling and administrative expense 146,880 149,760

    Income from operations 193,120 68,640
    Other expenses and losses
    Interest expense 9,920 7,200

    Income before income taxes 183,200 61,440
    Income tax expense 35,000 14,000

    Net income $148,200 $ 47,440

    More on page 2

    FRAGGLE ROCK COMPANY
    Balance Sheets
    December 31
    Assets 2007 2006
    Current assets
    Cash $ 23,100 $ 21,600
    Short-term investments 44,800 33,000
    Accounts receivable 106,200 93,800
    Inventory 116,400 64,000
    Total current assets 290,500 212,400
    Plant assets (net) 485,300 439,600
    Total assets $775,800 $652,000

    Liabilities and Stockholders' Equity
    Current liabilities
    Accounts payable $148,200 $132,000
    Income taxes payable 25,300 24,000
    Total current liabilities 173,500 156,000
    Bonds payable 132,000 120,000
    Total liabilities 305,500 276,000
    Stockholders' equity
    Common stock ($10 par) 140,000 130,000
    Retained earnings 330,300 246,000
    Total stockholders' equity 470,300 376,000
    Total liabilities and stockholders' equity $775,800 $652,000

    All sales were on account. Net cash provided by operating activities was $94,000. Capital
    expenditures were $47,000, and cash dividends were $55,000.
    Instructions
    Compute the following ratios for 2007.
    (a) Earnings per share. (h) Days in inventory.
    (b) Return on common stockholders' equity. (i) Times interest earned.
    (c) Return on assets. ( j) Asset turnover.
    (d) Current. (k) Debt to total assets.
    (e) Receivables turnover. (l) Current cash debt coverage.
    (f) Average collection period. (m) Cash debt coverage.
    (g) Inventory turnover. (n) Free cash flow.

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    https://brainmass.com/business/financial-ratios/horizontal-and-vertical-analysis-financial-ratios-223806

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    Solution Summary

    The solution explains how to carry out a horizontal and a vertical analysis and the calculation of some financial ratios.

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