ratios provided al review of Chapters 9-11. Calculate selected financial ca Caos
ID: 2586023 • Letter: R
Question
ratios provided al review of Chapters 9-11. Calculate selected financial ca Caostone analytical apstond explain financial reporting issues ages 132-133 for the financial statement data n to Case 4.30 (atios plse refer to Case 4. sis of this case. You should also review the solutio and ur instructor before attempting to complete this case.) Required a Case 4.30 presents the 2016 income statement and balance sheet for Gerrand hat other financial statements are required? What information i Co. W Construction C d these statements communicate that could not be determined by revievin only the income statement and balance sheet? uoetly describe the note disclosures that should be provided by Gerrard Constructi tion Co.. and explain why note disclosures are considered an inte- gral part of the financial statements. me that the balance of "Accounts Receivable, net" at December 31, 2015, C. as $16,400. Calculate the following activity measures for Gerrard Construction Co. for the year ended December 31, 2016: 1. Accounts receivable turnover 2. Number of days' sales in accounts receivable. d. Calculate the following financial leverage measures for Gerrard Construction Co at December 31, 2016: 1. Debt ratio. 2. Debt/equity ratio e. Gerrard Construction Co. wishes to lease some new earthmoving equipment from Caterpillar on a long-term basis. What impact (increase, decrease, or no effect) would a capital lease of S8 million have on the company's debt ratio and debt/equity ratio? (Note that these items were computed in part d and do not need to be recomputed for this requirement.) . Review the answer to Case 4.30 part i at this time. Assume that Gerrard Construction Co. had 4,800.000 shares of SI par value common stock outstand- ng throughout 2016, and that the market price per share of common stock at December 31, 2016, was $18.75. Calculate the following profitability measures for the year ended December 31, 2016: I. Earnings per share of common stock 2. Price/earnings ratio. 3. Dividend yield. 4. Dividend payout ratio.Explanation / Answer
1. Other financial statements should be
(i) Cash flow statement and Fund Flow statement - these statements are required to ascertain the availability of cash and cash equivalents with company to ascertain its working capital requirements. It helps the company to meet its emergency funds requirements relating to revenue and capital expenditure.It helps to decided what are the requirement of funds for payment of its current liabilities, and how the company is able to manage its receivables and payables and funds lying with company in hand and bank accounts.
(iii)notes to accounts - In notes to accounts the management of company describes what are the policies adopted by company to prepare its financials and resposibilities of management in preparation of financial statements. It also states the major decisions takes by management.
Ans 2. Notes disclosure consists of (i) policies adopted by management for prepataion of financial statements
(ii) whether the management has complied with its resposibility of preparation of Financial statements.
(iii) What are the accounting policies adopted by management and whther the policies adhere to the business of company.
(iv) what are major activities of company, major investments, major expansions made and to be made by co which could affect the financial position of co in future.
(v) The company has to describe in notes that depreciation and interest obligation is high as the business is capital intensive.
Ans 3. (i) Accounts receivable turnover = Net annual credit sales/ (Opening bal of account receivable + closing bal of account receivalbe/2)
= $32200000/(16400+9800000/2)
=6.56 times
(ii) No of days sales of account receivable = 365 days /accounts receivable turnover ratio
= 365/6.56 = 55.64 days
note ;
In the question the opening bal and closing bal of cash or cash received from debtors is not given because of which we are unable to calculate amount of credit sales and we have considered the entire sales as credit slaes.
Ans 4 . calculation of debt ratio
Debt ratio = total debt/total assets
here total debt means long term debts and short term debts = $47500000 ( taken for plant and equipment)
and total assets is current assets and non current assets. but in question we are given the value of average assets so theoretically we use value of average asssets in such case. = $ 86000000
Debt ratio = $47500000/$86000000 = 0.55
Debt equity ratio = Total liabilities/ total equity
total liabilities = current liabilitity and long term liabilities. = 47500000+3100000
instead of total shareholders fund we have used average shareholders fund value as given in question = $36000000
= $50600000/$36000000= 1.405
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