1. ABC Tire Company has grown a lot and has noticed that they are starting to take on a lot of debt in opening new retail installation locations. You are brought in as a consultant to analyze their financial situation. Look through the four types of financial ratios (liquidity, leverage, profitability, and market measure ratios). Briefly describe each type of ratio. Then figure out which type of financial ratios you would use to look at ABC Tires debt issues.
2. Selected information from the comparative financial statements of ABCTire Company for the year ended December 31, appears below:
Accounts receivable (net)
Net credit sales
Cost of goods sold
Income tax expense
There is no preferred stock and the tax rate is 30%.
Calculate each of the following for 2014:
a. Debt ratio
b. Debt-to-equity ratio
c. Times interest earned ratio
d. Gross margin percentage
e. Return on assets
f. Return on common stockholders' equity© BrainMass Inc. brainmass.com October 25, 2018, 10:14 am ad1c9bdddf
1) A description of each type of ratio is provided below:
Liquidity ratio—these ratios show if the company is able to fulfill its short-term debts. Hence, these ratios involve current assets and/or current liabilities.
Leverage ratios—these ratios indicate how much of the company's funds were borrowed. These ratios are used to analyze a company's ability to pay debts back in the long term. Creditors may use these ratios to determine if a company is able to satisfy its debt obligations in the long term. A high leverage ratio could indicate that the company has an increased risk ...
This solution provides a description of each type of financial ratio that has been provided. An explanation of which type of financial ratio is appropriate in a certain situation is given. Formulas and step-by-step computations have been provided.
Financial Reporting Annual Notes
Obtain the most recent annual financial statements and notes (annual report or 10-K) for Monro Muffler Brake, Inc. (MNRO).
You are asked only for selected financial statement analysis of your company. In your report, discuss trends, financial position, ratios, etc. only if relevant for evaluating the quality of reported financial information or specifically required by the project. For example, it may be helpful to discuss inventory turnover when assessing inventory valuation risk.
To assess a company's financial statements, think specifically about: (1) the types of underlying transactions and events that affect the company, (2) how well the financial accounting rules (i.e., GAAP) reflect those transactions and events, (3) the aggressiveness or conservatism of management's accounting choices, and (4) how the annual report helps you assess the company's risks, financial position, and profitability.
Additional valuable information about the Company is in the MD&A report. This information may help you understand the company's business policies and practices.
For each item below, provide an easy to read and understandable presentation of the facts for your company.
1. REVENUE RECOGNITION AND RECEIVABLES VALUATION:
? Types of revenue transactions (e.g., cash, credit, or advance customer orders, etc.)
? Importance and role of accounts receivable to the company
? Potential for abuse of accounts receivable
2. COST OF GOODS SOLD AND INVENTORY VALUATION:
? Importance and role of inventory for this company
? The inventory valuation method(s)
? Major inventory valuation risks for this industry (e.g., obsolescence, declining demand, fluctuating costs, technological change, or other)
? Potential for abuse of inventory in financial reporting (explain how if it is likely)
Link for 10K: morningstar.com ( http://quote.morningstar.com/stock-filing/Annual-Report/2011/3/26/t.aspx?t=XNAS:MNRO&ft=10-K&d=494a5ad12f3cde1f4e477c4bd3c24f2b)View Full Posting Details