Complete The Following Financial Accounting Problem Sets

Complete the following problem sets of Financial Accounting: (P2-6A) & (P13-2A)

Complete the following problem sets of Financial Accounting: (P2-6A) & (P13-2A) P2-6A Condensed balance sheet and income statement data for Sadecki Corporation are presented here and on the next page. Compute and interpret liquidity, solvency, and profitability ratios . (LO 2, 4, 5), AP SADECKI CORPORATION Balance Sheets December 31 Assets Cash $ 28,000 $ 20,000 Receivables (net) 70,000 62,000 Other current assets 90,000 73,000 Long-term investments 62,000 60,000 Property, plant, and equipment (net) 510,000 Total assets $760,000 $685,000 Liabilities and Stockholders’ Equity Current liabilities $ 75,000 $ 70,000 Long-term liabilities 80,000 90,000 Common stock 330,000 Retained earnings 275,000 Total liabilities and stockholders’ equity $760,000 $685,000 SADECKI CORPORATION Income Statements For the Years Ended December Sales revenue $750,000 $680,000 Cost of goods sold 440,000 Operating expenses (including income taxes) 240,000 Net income $ 70,000 $ 60,000 Additional information: Net cash provided by operating activities $82,000 $56,000 Cash used for capital expenditures $45,000 $38,000 Dividends paid $20,000 $15,000 Average number of shares outstanding 33,000 30,000 Instructions Compute these values and ratios for 2013 and 2014. · (a) Earnings per share. · (b) Working capital. · (c) Current ratio. · (d) Debt to assets ratio. · (e) Free cash flow. · (f) Based on the ratios calculated, discuss briefly the improvement or lack thereof in financial position and operating results from 2013 to 2014 of Sadecki Corporation.

P13-2A The comparative statements of Osborne Company are presented here. Compute ratios from balance sheets and income statements . (LO 6), AP OSBORNE COMPANY Income Statements For the Years Ended December Net sales $1,890,540 $1,750,500 Cost of goods sold 1,058,540 1,006,000 Gross profit 832,500 Selling and administrative expenses 500,000 Income from operations 332,500 Other expenses and losses Interest expense 22,000 Income before income taxes 310,500 Income tax expense 92,000 Net income $ 218,000 $ 172,500 OSBORNE COMPANY Balance Sheets December 31 Assets Current assets Cash $ 60,100 $ 64,200 Debt investments (short-term) 74,000 50,000 Accounts receivable 117,800 Inventory 126,500 Total current assets 377,500 Plant assets (net) 649,300 Total assets $1,026,900 $852,800 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 160,000 $145,400 Income taxes payable 43,000 Total current liabilities 203,400 Bonds payable 220,000 Total liabilities 423,400 Stockholders’ equity Common stock ($5 par) 290,000 Retained earnings 313,400 Total stockholders’ equity 603,400 Total liabilities and stockholders’ equity $1,026,900 $852,800 All sales were on account. Net cash provided by operating activities for 2014 was $220,000. Capital expenditures were $136,000, and cash dividends were $70,000. Instructions Compute the following ratios for 2014. · (a) Earnings per share. · (b) Return on common stockholders’ equity. · (c) Return on assets. · (d) Current ratio. · (e) Accounts receivable turnover. · (f) Average collection period. · (g) Inventory turnover. · (h) Days in inventory. · (i) Times interest earned. · (j) Asset turnover. · (k) Debt to assets. · (l) Current cash debt coverage. · (m) Cash debt coverage. · (n) Free cash flow.

Paper For Above instruction

The analysis of financial statements provides crucial insights into a company's financial health and operational efficiency. This paper compares the financial performance and position of Sadecki Corporation during 2013 and 2014, focusing on liquidity, solvency, and profitability ratios. Additionally, the financial ratios of Osborne Company for the year 2014 are calculated to assess their operational efficiency and financial stability. By interpreting these ratios, stakeholders can evaluate trends, identify strengths and weaknesses, and make informed decisions regarding the companies’ future prospects.

Sadecki Corporation: Financial Ratio Analysis for 2013 and 2014

The initial step involves calculating key financial ratios for Sadecki Corporation to evaluate its liquidity, solvency, and profitability over the two years.

1. Earnings Per Share (EPS)

Earnings Per Share indicates profitability on a per-share basis. It is calculated by dividing net income by the weighted average number of shares outstanding. For 2013:

  • Net Income = $60,000
  • Shares Outstanding = 30,000

EPS = $60,000 / 30,000 = $2.00

For 2014:

  • Net Income = $70,000
  • Shares Outstanding = 33,000

EPS = $70,000 / 33,000 ≈ $2.12

The increase in EPS from $2.00 to approximately $2.12 suggests improved profitability per share in 2014.

2. Working Capital

Working Capital measures short-term liquidity and is calculated as Current Assets minus Current Liabilities.

2013:

  • Current Assets = $200,000 (sum of cash, receivables, and other current assets)
  • Current Liabilities = $70,000

Working Capital = $200,000 - $70,000 = $130,000

2014:

  • Current Assets = $377,500
  • Current Liabilities = $203,400

Working Capital = $377,500 - $203,400 = $174,100

The increase in working capital reflects an enhanced short-term liquidity position in 2014.

3. Current Ratio

The current ratio is computed as Current Assets divided by Current Liabilities.

2013:

Current Ratio = $200,000 / $70,000 ≈ 2.86

2014:

Current Ratio = $377,500 / $203,400 ≈ 1.86

Although the ratio decreased, it remains above 1, indicating the company maintains adequate short-term liquidity.

4. Debt to Assets Ratio

This ratio measures leverage, calculated as Total Liabilities divided by Total Assets.

2013:

Debt to Assets = ($70,000 + $90,000) / $685,000 ≈ 0.22

2014:

Debt to Assets = $203,400 / $852,800 ≈ 0.24

Slight increase indicates marginally higher leverage in 2014.

5. Free Cash Flow

Free Cash Flow (FCF) reflects cash available after capital expenditures, calculated as Net Cash Provided by Operating Activities minus Capital Expenditures.

2013:

FCF = $82,000 - $45,000 = $37,000

2014:

FCF = $56,000 - $38,000 = $18,000

The decline in free cash flow suggests a reduced ability to fund growth or return value to shareholders.

Summary of Findings for Sadecki Corporation

The improved net income and earnings per share between 2013 and 2014 point to enhanced profitability. However, the decreasing current ratio and free cash flow indicate some deterioration in liquidity and cash management. The slight rise in leverage suggests increased reliance on debt financing, which could impact long-term solvency. Overall, the company demonstrates growth but must monitor liquidity and cash flow to sustain its operations and support future growth.

Osborne Company: Ratio Analysis for 2014

The ratios computed for Osborne Company reflect its operational efficiency, financial leverage, and liquidity position in 2014.

1. Earnings Per Share (EPS)

  • Net Income = $218,000
  • Shares Outstanding = 290,000 / $5 = 58,000

EPS = $218,000 / 58,000 ≈ $3.76

2. Return on Common Stockholders’ Equity

Return on Equity (ROE) measures profitability relative to shareholders’ equity.

ROE = Net Income / Average Stockholders’ Equity

Average Equity = ($603,400 + $313,400) / 2 = $458,400

ROE = $218,000 / $458,400 ≈ 0.475 or 47.5%

3. Return on Assets (ROA)

ROA indicates how efficiently assets generate net income.

Average Total Assets = ($1,026,900 + $852,800) / 2 = $939,850

ROA = $218,000 / $939,850 ≈ 0.232 or 23.2%

4. Current Ratio

Current Assets / Current Liabilities = $377,500 / $203,400 ≈ 1.85

5. Accounts Receivable Turnover

  • Net Sales = $1,890,540
  • Average Accounts Receivable = ($117,800 + $116,000) / 2 ≈ $116,900

Turnover = $1,890,540 / $116,900 ≈ 16.17 times

6. Average Collection Period

Days = 365 / Accounts Receivable Turnover ≈ 365 / 16.17 ≈ 22.58 days

7. Inventory Turnover

  • Cost of Goods Sold = $1,058,540
  • Average Inventory = ($126,500 + $120,000) / 2 ≈ $123,250

Turnover = $1,058,540 / $123,250 ≈ 8.59 times

8. Days in Inventory

Days = 365 / 8.59 ≈ 42.48 days

9. Times Interest Earned

Operating Income / Interest Expense = $332,500 / $22,000 ≈ 15.14 times

10. Asset Turnover

Net Sales / Average Total Assets = $1,890,540 / $939,850 ≈ 2.01

11. Debt to Assets Ratio

Total Liabilities / Total Assets = $423,400 / $1,026,900 ≈ 0.412 or 41.2%

12. Current Cash Debt Coverage

Net Cash Provided by Operations / Current Liabilities = $220,000 / $203,400 ≈ 1.08

13. Cash Debt Coverage

Net Cash Provided by Operations / Total Liabilities = $220,000 / $423,400 ≈ 0.52

14. Free Cash Flow

Net cash from operating activities minus capital expenditures = $220,000 - $136,000 = $84,000

Concluding Remarks

The analysis of Osborne Company's 2014 ratios indicates robust profitability, evidenced by high return on equity and assets, and efficient receivables and inventory management. The low debt ratio suggests a conservative leverage stance, contributing to financial stability. The company's strong interest coverage and free cash flow highlight its capacity to meet debt obligations and invest in growth. Overall, Osborne demonstrated sound financial health in 2014, positioned for sustainable operations and strategic expansion.

References

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