Financial Statement Analysis

Math Practice

Prepared By:

Dr. S. M. Khaled Hossain

Assistant Professor (Accounting)
Army Institute of Business Administration (AIBA)
(Affiliated Institute of Bangladesh University of Professionals- BUP)
Savar Cantonment, Dhaka-1344.
Email: smkhossain.armyiba@gmail.com

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Exercise: 01
Sprague Company has been operating for several years, and on December 31, 2014, presented the
following balance sheet.

The net income for 2014 was $25,000. Assume that total assets are the same in 2013 and 2014.
Instructions:
Compute each of the following ratios. For each of the four, indicate the manner in which it is
computed and its significance as a tool in the analysis of the financial soundness of the company.
a) Current ratio
b) Acid-test ratio
c) Debt to assets
d) Return on assets

Exercise: 02
Prior Company’s condensed financial statements provide the following information.

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Instructions:
a) Determine the following for 2014.
(1) Current ratio at December 31. (2) Acid-test ratio at December 31. (3) Accounts receivable
turnover. (4) Inventory turnover. (5) Return on assets. (6) Profit margin on sales.
b) Prepare a brief evaluation of the financial condition of Prior Company and of the adequacy of
its profits.

Exercise: 03
Presented below is information related to Carver Inc.

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Instructions:
a) Compute the following ratios or relationships of Carver Inc. Assume that the ending account
balances are representative unless the information provided indicates differently.
1. Current ratio.
2. Inventory turnover.
3. Accounts receivable turnover.
4. Earnings per share.
5. Profit margin on sales.
6. Return on assets on December 31, 2014.
b) Indicate for each of the following transactions whether the transaction would improve, weaken,
or have no effect on the current ratio of Carver Inc. at December 31, 2014.
1. Write off an uncollectible account receivable, $2,200.
2. Purchase additional capital stock for cash.
3. Pay $40,000 on notes payable (short-term).
4. Collect $23,000 on accounts receivable.
5. Buy equipment on account.
6. Give an existing creditor a short-term note in settlement of account.

Exercise: 04
Singleton Company has been operating for several years, and on December 31, 2014, presented
the following balance sheet.

The net income for 2014 was $12,500. Assume that total assets are the same in 2013 and 2014.
Instructions:
Compute each of the following ratios. For each of the four, indicate the manner in which it is
computed and its significance as a tool in the analysis of the financial soundness of the company.
a) Current ratio.
b) Acid-test ratio
c) Debt to total assets
d) Rate of return on assets

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Exercise: 05
HQ Company’s condensed financial statements provide the following information.

Instructions:
a) Determine the following for 2014.
1. Current ratio at December 31.
2. Acid-test ratio at December 31.
3. Accounts receivable turnover.
4. Inventory turnover.
5. Rate of return on assets.
6. Profit margin on sales.
b) Prepare a brief evaluation of the financial condition of HQ Company and of the adequacy of
its profits.

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Exercise: 06
Presented below is information related to Lakeland Inc.

Instructions:
a) Compute the following ratios or relationships of Lakeland Inc. Assume that the ending account
balances are representative unless the information provided indicates differently.
1. Current ratio.
2. Inventory turnover.
3. Receivables turnover.
4. Earnings per share.
5. Profit margin on sales.
6. Rate of return on assets on December 31, 2014.
b) Indicate for each of the following transactions whether the transaction would improve, weaken,
or have no effect on the current ratio of Lakeland Inc. at December 31, 2014.
1. Write off an uncollectible account receivable, $6,800.
2. Repurchase capital stock for cash.
3. Pay $46,000 on notes payable (short-term).
4. Collect $70,000 on accounts receivable.
5. Buy equipment on account.
6. Give an existing creditor a short-term note in settlement of account.

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Exercise: 07
The following Trading and Profit and Loss Account of Fantasy Ltd. for the year 31‐3‐2000 is given
below:

Calculate the (a)Gross Profit Ratio (b) Expenses Ratio (c) Operating Ratio (d) Net Profit Ratio
(e) Operating (Net) Profit Ratio (f) Stock Turnover Ratio.

Exercise: 08
The Balance Sheet of Punjab Auto Limited as on 31‐12‐2002 was as follows:

From the above, compute (a) the Current Ratio, (b) Quick Ratio, (c) the Debt‐Equity Ratio, and
(d) Proprietary Ratio.

Exercise: 09
The details of Shreenath Company are as under:
Sales (40% cash sales) 15,00,000
Less: Cost of sales 7,50,000

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Gross Profit: 7,50,000
Less: Office Exp. (including int. on debentures) 1,25,000
Selling Exp. 1,25,000 2,50,000
Profit before Taxes: 5,00,000
Less: Taxes 2,50,000
Net Profit: 2,50,000

Beside the details mentioned above, the opening stock was of Rs. 3,25,000. Taking 360 days of
the year, calculate the following ratios; also discuss the position of the company:
(1) Gross profit ratio. (2) Stock turnover ratio. (3) Operating ratio. (4) Current ratio. (5) Liquid
ratio. (6) Debtors ratio. (7) Creditors ratio. (8) Proprietary ratio. (9) Rate of return on net capital
employed. (10) Rate of return on equity shares.

Exercise: 10
From the following particulars extracted from the books of Ashok & Co. Ltd., compute the
following ratios and comment:
(a) Current ratio, (b) Acid Test Ratio, (c) Stock‐Turnover Ratio, (d) Debtors Turnover Ratio, (e)
Creditors' Turnover Ratio, and Average Debt Collection period.

1‐1‐2002 31‐12‐2002
Rs. Rs.
Bills Receivable 30,000 60,000
Bills Payable 60,000 30,000
Sundry Debtors 1,20,000 1,50,000
Sundry Creditors 75,000 1,05,000
Stock‐in‐trade 96,000 1,44,000

Additional information:
1. On 31‐12‐2002, there were assets: Building Rs. 2,00,000, Cash Rs. 1,20,000 and Cash at Bank
Rs. 96,000.
2. Cash purchases Rs. 1,38,000 and Purchases Returns were Rs. 18,000.
3. Cash sales Rs. 1,50,000 and Sales returns were Rs. 6,000.
4. Rate of gross profit 25% on sales and actual gross profit was Rs. 1,50,000.

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Exercise: 11
Following is the summarised Balance Sheet of Mona Ltd. as on 31‐3‐04.

Summarised Profit and Loss Account is as under for the year ending on 31‐3‐'04:
Rs.
Sales (25% Cash sales) 80,00,000
Less: Cost of goods sold 56,00,000
Gross Profit 24,00,000
Net profit (Before interest and tax 50%) 9,00,000

Calculate the following ratios:

(1) Rate on Return on Capital Employed (2) Proprietary Ratio (3) Debt‐Equity (4) Capital gearing
Ratio (5) Debtors Ratio (365 days of the year.) (6) Rate of Return on Shareholders' Funds (7) Rate
of Return on Equity shareholders fund.

Exercise: 12
Two years' Balance sheets of Jamuna Company Ltd. are as follows:

Additional Information:
2002‐'03 2003‐04
Rs. Rs.
Sales 3,65,000 2,19,000
Cost of Goods sold 2,19,000 1,46,000

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Net profit (Before Pref. Dividend) 35,000 47,500
Stock on 1‐4‐'02 71,000 ‐‐‐

Calculate following ratios and give your opinion about company position in 2003‐'04 in
comparison with 2002‐'03. Whether it is positive or negative?

(1) Current ratio (2) Liquid ratio (3) Debtors ratio (Take 365 days for calculations) (4) Gross profit
ratio (5) Stock Turnover ratio (6) Rate of return on equity share‐holders' funds.

Exercise: 13
The Balance Sheet as on 2002 and 2003 are as under:

Find out (1) Current Ratio (2) Stock Turnover Ratio (3) Gross Profit Ratio (4) Liquid Ratio (5)
Debtor Ratio (working days 300) (6) Return on Equity Capital employed (7) Ownership Ratio.

Exercise: 14
From the following information, prepare the Balance Sheet of ABB Ltd. Showing the details of
working:
Paid up capital Rs. 50,000
Plant and Machinery Rs. 1,25,000
Total Sales (p.a.) Rs. 5,00,000
Gross Profit 25%
Annual Credit Sales 80% of net sales
Current Ratio 2
Inventory Turnover 4

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Fixed Assets Turnover 2
Sales Returns 20% of sales
Average collection period 73 days
Bank Credit to trade credit 2
Cash to Inventory 1:15
Total debt to current Liabilities 3

Exercise: 15
Following are incomplete Trading & Profit and Loss A/c. and Balance Sheet.

Find out missing items with the help of other details are as under:
1. Current Ratio was 2:1.
2. Closing Stock is 25% of Sales.
3. Proposed Dividend was 40% of paid-up capital.
4. Gross profit Ratio was 60%.
5. Amount transfer to General Reserve is same as proposed Dividend.
6. Balance of P & L Account is calculated 10% of proposed dividend.
7. Commission income is 1/7 of Net profit.
8. Balance of General reserve is twice the current year transfer amount.

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Exercise: 16
From the following compute the current ratio, quick ratio, cash ratio and Net Working Capital
ratio:
Stock 36,500
Prepaid expenses 1,000
Sundry Debtors 63,500
Bank overdraft 20,000
Cash in hand & bank 10,000
Sundry creditors 25,000
Bills receivable 9,000
Bills payable 16,000
Short-term investments 30,000
Outstanding expenses 14,000

Exercise: 17
Calculate the Current Ratio, quick ratio, cash ratio and Net Working Capital ratio from the
following:
Prepaid Expenses Rs. 20,000
Creditors Rs.20,000
Debentures Rs.2,00,000
Machinery Rs.50,000
Debtors Rs.40,000
Investments (Short term) Rs.10,000
Bills Payable Rs.10,000
Stock Rs.20,000
Outstanding Expenses Rs.20,000
Accrued Income Rs.5,000

Exercise: 18
The following is the Balance Sheet of a company as on 31st March 2011:
Liabilities and OE Tk. Assets Tk.
Share capital 200,000 Land and Buildings 140,000
Profit and Loss account 30,000 Plant and Machinery 350,000
General Reserve 40,000 Stock 200,000
12% Debentures 420,000 Sundry debtors 100,000
Sundry Creditors 100,000 Bills receivable 10000
Bills Payable 50,000 Cash at bank 40,000
Calculate: (a) Current ratio, (b) Quick ratio and (c) Absolute liquid Ratio

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Exercise: 19
The data extracted from the books of the three automobile companies are provided below:
Particulars X Company (Tk) Y Company (Tk) Z Company (Tk)
Inventories 2,200,000 1,400,000 1,900,000
Debtors 1,000,000 3,200,000 3,000,000
Account Payable 1,150,000 1,200,000 2,800,000
Cash 200,000 60,000 100,000
Bank Deposit 670,000 -310,000 -630,000

Required:
a) Find the liquidity ratios for the above companies
b) Evaluate the performance of the companies on relative basis

Exercise: 20
From the following information, calculate (i) Total Assets Turnover (ii) Fixed Assets Turnover
and (iii) Working Capital Turnover Ratios:
Preference Shares Capital 4,00,000
Plant and Machinery 8,00,000
Equity Share Capital 6,00,000
Land and Building 5,00,000
General Reserve 1,00,000
Motor Car 2,00,000
Profit and Loss Account 3,00,000
Furniture 1,00,000
15% Debentures 2,00,000
Stock 1,80,000
14% Loan 2,00,000
Debtors 1,10,000
Creditors 1,40,000
Bank 80,000
Bills Payable 50,000
Cash 30,000
Outstanding Expenses 10,000
Sales for the year 2018 were Rs. 30,00,000

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