Financial Statement Ratio Analysis

Easy Practice Test

Introduction to Accounting

Financial Statement Ratio Analysis

Easy Practice Test

Click the “Check Your Answer” box below each question to reveal the correct answer and explanation.

1. Compute the following ratios using the financial statements for Intel Corporation for 201X.

A. Current Ratio
B. Quick Ratio:
C. Accounts Receivable Turnover:
D. Average Collection Period:
E. Inventory Turnover:
F. Days Inventory in Warehouse:
G. Debt to Total Assets:
H. Debt to Equity:
I. Return on Stockholder’s Equity:
J. Return on Assets:
K. Profit Margin:
L. Earnings Per Share:
M. Price-Earnings Ratio:

The fair market value of one share of common stock was $25 on December 25, 201X.

Intel had 5,565 million shares of common stock outstanding on December 25, 201X.

INTEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME


Three Years Ended December 25, 201X
(In Millions, Except Per Share Amounts)	201X		200X			20XX
Net revenue	$	43,623	$	35,127		$	37,586
Cost of sales		15,132		15,566			16,742
Gross margin		28,491		19,561			20,844
Research and development		6,576		5,653			5,722
Marketing, general and administrative		6,309		7,931			5,452
Restructuring and asset impairment charges		—		231			710
Amortization of acquisition-related intangibles		18		35			6
Operating expenses		12,903		13,850			11,890
Operating income		15,588		5,711			8,954
Gains (losses) on equity method investments, net		117		(147	)		(1,380	)
Gains (losses) on other equity investments, net		231		(23	)		(376	)
In Interest and other, net		109		163			488
Income before taxes		16,045		5,704			7,686
Provision for taxes		4,581		1,335			2,394
Net income	$	11,464	$	4,369		$	5,292
Basic earnings per common share	$	2.06	$	0.79		$	0.93
Diluted earnings per common share	$	2.01	$	0.77		$	0.92

INTEL CORPORATION
CONSOLIDATED BALANCE SHEETS


December 25, 201X and December 26, 200X
(In Millions, Except Par Value)	201X		200X
Assets
Current assets:
Cash and cash equivalents	$	5,498	$	3,987
Short-term investments		11,294		5,285
Trading assets		5,093		4,648
Accounts receivable, net of allowance for doubtful accounts of $28 ($19 in 200X)		2,867		2,273
Inventories		3,757		2,935
Deferred tax assets		1,488		1,216
Other current assets		1,614		813
Total current assets		31,611		21,157
Property, plant and equipment, net		17,899		17,225
Marketable equity securities		1,008		773
Other long-term investments		3,026		4,179
Goodwill		4,531		4,421
Other long-term assets		5,111		5,340
Total assets	$	63,186	$	53,095

Liabilities and stockholders’ equity
Current liabilities:
Short-term debt	$	38	$	172
Accounts payable		2,290		1,883
Accrued compensation and benefits		2,888		2,448
Accrued advertising		1,007		773
Deferred income on shipments to distributors		622		593
Other accrued liabilities		2,482		1,722

Total current liabilities		9,327		7,591
Long-term income taxes payable		190		193
Long-term debt		2,077		2,049
Long-term deferred tax liabilities		926		555
Other long-term liabilities		1,236		1,003
Commitments and contingencies (Notes 23 and 29)
Stockholders’ equity:
Deferred stock, $0.001 par value, 50 shares authorized; none issued		—		—
Common stock, $0.001 par value, 10,000 shares authorized; 5,581 issued and 5,511 outstanding (5,523 issued and outstanding in 200X) and capital in excess of par value		16,178		14,993
A Accumulated other comprehensive income (loss)		333		393
Retained earnings		32,919		26,318
Total stockholders’ equity		49,430		41,704
Total liabilities and stockholders’ equity	$	63,186	$	53,095

Answer

Answers to Problem 1: Financial Statement Ratio Analysis

A. Current Ratio:

Current Assets 31,611 = 3.39
Current Liabilities 9,327

B. Quick Ratio:

Cash + Short-term Investments + Receivables (liquid assets)
Current Liabilities

$5,498 + $11,294 + $2,867 / $9,327 = 2.11

C. Accounts Receivable Turnover:

Net Sales
Average Accounts Receivables

2,273 + 2,867 / 2 = $2,570 average accounts receivable

$43,623 / $2,570 = 17.0 x per year

D. Average Collection Period:

365
Accounts Receivable Turnover

365 / 17.0 = 21.47 days to collect

E. Inventory Turnover:

Cost of Goods Sold
Average Inventory

Average inventory = 2,935 + 3,757 / 2 = 3,346

$15,132 / $3,346 = 4.52 x per year

F. Days Inventory in Warehouse:

365
Inventory turnover

365 / 4.52 = 80.8 days in the warehouse

G. Debt to Total Assets:

Total Liabilities
Total Assets

$13,756 / $63,186 = 21.8%

H. Debt to Equity:

Total Liabilities
Total Stockholder’s Equity

$13,756 / $49,430 = 28%

I. Return on Stockholder’s Equity:

Net Income
Average Stockholder’s Equity

(49,430 +41,704 )/ 2 = 45,567

$11,464 / $45,567 = 25.2%

J. Return on Assets:

Net Income
Average Total Assets

(63,186 + 53,095 / 2) = 58,141

$11,464 / $58,141 = 19.7%

K. Profit Margin:

Net Income
Sales

$11,464 / $43,623 = 26.3%

L. Earnings Per Share:

Net Income – Preferred Dividends
Weighted Average Number of Common Shares

$11,464 – 0 / 5,565 = $2.06 per share

M. Price-Earnings Ratio:

Market Price
Earnings Per Share

$25 / $2.06 = 12.1 x

2. Compute the following ratios using the financial statements for Walt Disney Company for 20X1.

A. Current Ratio
B. Quick Ratio:
C. Accounts Receivable Turnover:
D. Average Collection Period:
E. Inventory Turnover:
F. Days Inventory in Warehouse:
G. Debt to Total Assets:
H. Debt to Equity:
I. Return on Stockholder’s Equity:
J. Return on Assets:
K. Profit Margin:
L. Earnings Per Share:
M. Price-Earnings Ratio:

The fair market value of one share of common stock was $37 on October 2, 201X.

Disney had 1,914 million shares of common stock outstanding on October 2, 201X.

Walt Disney Company
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data)

	201X			200X			20XX
Revenues	$	38,063		$	36,149		$	37,843

Costs and expenses		(31,337	)		(30,452	)		(30,400	)

Restructuring and impairment charges		(270	)		(492	)		(39	)

Other income (expense)		140			342			(59	)

Net interest expense		(409	)		(466	)		(524	)

Equity in the income of investees		440			577			581


Income before income taxes		6,627			5,658			7,402

Income taxes		(2,314	)		(2,049	)		(2,673	)


Net Income		4,313			3,609			4,729

Less: Net Income attributable to noncontrolling interests		(350	)		(302	)		(302	)


Net Income attributable to The Walt Disney Company (Disney)	$	3,963		$	3,307		$	4,427


Earnings per share attributable to Disney:
Diluted	$	2.03		$	1.76		$	2.28

Basic	$	2.07		$	1.78		$	2.34


Weighted average number of common and common equivalent shares outstanding:
Diluted		1,948			1,875			1,948

Basic		1,915			1,856			1,890

Walt Disney Company
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)


	October 2, 201X			October 3, 200X
ASSETS
Current assets
Cash and cash equivalents	$	2,722		$	3,417
Receivables		5,784			4,854
Inventories		1,442			1,271
Television costs		678			631
Deferred income taxes		1,018			1,140
Other current assets		581			576

Total current assets		12,225			11,889

Film and television costs		4,773			5,125
Investments		2,513			2,554
Parks, resorts and other property, at cost Attractions, buildings and equipment		32,875			32,475
Accumulated depreciation		(18,373	)		(17,395	)

		14,502			15,080
Projects in progress		2,180			1,350
Land		1,124			1,167

		17,806			17,597

Intangible assets, net		5,081			2,247
Goodwill		24,100			21,683
Other assets		2,708			2,022

	$	69,206		$	63,117

LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued liabilities	$	6,109		$	5,616
Current portion of borrowings		2,350			1,206
Unearned royalties and other advances		2,541			2,112

Total current liabilities		11,000			8,934

Borrowings		10,130			11,495
Deferred income taxes		2,630			1,819
Other long-term liabilities		6,104			5,444
Commitments and contingencies (Note 15)
Equity
Preferred stock, $.01 par value Authorized — 100 million shares, Issued — none		—			—
Common stock, $.01 par value Authorized — 4.6 billion shares at October 2, 201X and 3.6 billion shares at October 3, 200X Issued — 2.7 billion shares at October 2, 201X and 2.6 billion shares at October 3, 200X		28,736			27,038
Retained earnings		34,327			31,033
Accumulated other comprehensive loss		(1,881	)		(1,644	)
		61,182			56,427
Treasury stock, at cost, 803.1 million shares at October 2, 201X and 781.7 million shares at October 3, 200X		(23,663	)		(22,693	)
Total Disney Shareholder’s equity		37,519			33,734
Noncontrolling interests		1,823			1,691
Total Equity		39,342			35,425
Total liabilities and equity	$	69,206		$	63,117

Answer

Answers to Problem 2: Financial Statement Ratio Analysis

A. Current Ratio:

12,225 = 1.11
11,000

B. Quick Ratio:

$2,722 + $0 + $5,784
$11,000
= 0.77

C. Accounts Receivable Turnover:

(4,854 + 5,784) / 2 = $5,319 average accounts receivable

$38,063 / $5,319 = 7.16 x per yea

D. Average Collection Period:

365 / 7.16 = 51 days to collect

E. Inventory Turnover:

1,271 + 1,442 / 2 = 1,357
$31,337 / $1,357 = 23.1 x per year

Note: The amount used is for “costs and expenses” which includes more than cost of goods sold. Cost of goods sold is not given separately.
Inventory turnover will be lower than computed and days will be higher.

F. Days Inventory in Warehouse

365 / 23.1 = 15.8 days in the warehouse

G. Debt to Total Assets:

29,864 = 43.2%
69,206

H. Debt to Equity:

29,864 = 76%
39,342

I. Return on Stockholder’s Equity:

(39,342 + 35,425) / 2 = 37,384

$3,963 / $37,384 = 10.6%

J. Return on Assets:

69,206 + 63,117 / 2 = 66,162
$3,963 / $66,162 = 6.0%

K. Profit Margin:

$3,963 / $38,063 = 10.4%

L. Earnings Per Share:

$3,963 – 0 / 1,914 = $2.07 per share

M. Price-Earnings Ratio:

$37 / $2.07 = 17.9 x

Financial Statement Ratio Analysis

Easy Practice Test

Introduction to Accounting