1. Liquidity ratios. Edison, Stagg, and Thorntonhave the following financial information at the close of business on July 10: Edison Stagg Thornton Cash $6,000 $5,000 $4,000 Short-term investments 3,000 2,500 2,000 Accounts receivable 2,000 2,500 3,000 Inventory 1,000 2,500 4,000 Prepaid expenses 800 800 800 Accounts payable 200 200 200 Notes payable: short-term 3,100 3,100 3,100 Accrued payables 300 300 300 Long-term liabilities 3,800 3,800 3,800 Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most liquid? Why? 2. Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc: 20X5 20X4 Net credit sales $832,000 $760,000 Cost of goods sold 530,000 400,000 Cash, Dec. 31 125,000 110,000 Average Accounts receivable 205,000 156,000 Average Inventory 70,000 50,000 Accounts payable, Dec. 31 115,000 108,000 Instructions a. Compute the accounts receivable and inventory turnover ratios for 20X5. Alaska rounds all calculations to two decimal places. 3. Profitabilityratios, trading on the equity. Digital Relay has bothpreferred and common stock outstanding. The company reported the followinginformation for 20X7: Net sales $1,750,000 Interest expense 120,000 Income tax expense 80,000 Preferred dividends 25,000 Net income 130,000 Average assets 1,200,000 Average common stockholders’ equity 500,000 Compute the profit margin on sales ratio, the return on equity and the return on assets, rounding calculations to two decimal places.Does the firm have positive or negative financial leverage? Briefly explain. 4. Horizontal analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow. 20X2 20X1 Current Assets $86,000 $80,000 Property, Plant, and Equipment (net) 99,000 90,000 Intangibles 25,000 50,000 Current Liabilities 40,800 48,000 Long-Term Liabilities 153,000 160,000 Stockholders’ Equity 16,200 12,000 Net Sales 500,000 500,000 Cost of Goods Sold 322,500 350,000 Operating Expenses 93,500 85,000 a. Prepare a horizontal analysis for 20X1 and 20X2. Briefly comment on the results of your work. 5.Vertical analysis. Mary Lynn Corporation has been operating for severalyears. Selected data from the 20X1 and 20X2 financial statements follow. 20X2 20X1 Current Assets $86,000 $80,000 Property, Plant, and Equipment (net) 99,000 80,000 Intangibles 25,000 50,000 Current Liabilities 40,800 48,000 Long-Term Liabilities 153,000 150,000 Stockholders’ Equity 16,200 12,000 Net Sales 500,000 500,000 Cost of Goods Sold 322,500 350,000 Operating Expenses 93,500 85,000 a. Prepare a vertical analysis for 20X1 and20X2. Briefly comment on the results of your work.
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