Tutorial 6

Ratio Analysis
 Transaction Ratio Effect
1Issued common stock for Cash Asset Turnover Ratio Decrease
2Declared Cash dividend Current Ratio Decrease
3Declared stock dividend Current Ratio None
4Borrowed cash by issuing Notes Payable Liabilities to Equity Ratio
5Paid Salaries Expense Inventory Turnover None
6Sold Equipment for Cash Receivables Turnover None
7Sold Merchandise on Account Quick Ratio Increase
8Puchased marketable securities for cash Quick Ratio None
9Paid current portion of long-term debt ROA Increase
10Gave sales Discount Profit Margin Decrease

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 Transaction Ratio Effect
1Issued common stock for Cash Asset Turnover Ratio Decrease
2Declared Cash dividend Current Ratio Decrease
3Declared stock dividend Current Ratio None
4Borrowed cash by issuing Notes Payable Liabilities to Equity Ratio Increase
5Paid Salaries Expense Inventory Turnover None
6Sold Equipment for Cash Receivables Turnover None
7Sold Merchandise on Account Quick Ratio Increase
8Puchased marketable securities for cash Quick Ratio None
9Paid current portion of long-term debt ROA Increase
10Gave sales Discount Profit Margin Decrease

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 Information pertaining to common size financial statements is given below:
Common Size Balance Sheet 2018 2017 Common Size Income Statement For the year
Current Assets 0.2 0.2 ended 31/03/2018
Property, Plant & Equipment 0.5 0.4 Net Sales 1
Long-term Investments 0.3 0.4 Less: COGS 0.3675
Total Assets 1 1 Gross Profit 0.6325
Current Liabilities 0.14 0.14 Less: SG&A Expenses 0.35
Long term liabilities 0.27375 0.2 Operating Income 0.2825
Common Stock 0.48 0.56 Interest Expenses 0.1
Retained Earnings 0.10625 0.1 Profit Before Tax 0.1825
Liabilities and Stockholders’ 1 1 Income Tax Expense 0.045
Equity Net Income 0.1375

Further it is known that:

Find the following:
a) Total common stock in the year 2017 was US $ 140,000
1. Asset Turnover
b) Dividend paid for 2018 was $ 6875.
c) Return on assets of Paradise Ltd was 5% 2. Change in Net Working
Capital
d) Dividend payout ratio for the year was 50%.

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 Common Size Balance Sheet 2018 2017 Common Size Income Statement For the year
Current Assets 0.2 0.2 ended 31/03/2018
Property, Plant & Equipment 0.5 0.4 Net Sales 1 Find:
Long-term Investments 0.3 0.4 Less: COGS 0.3675
1. Asset Turnover
Total Assets 1 1 Gross Profit 0.6325
Current Liabilities 0.14 0.14 Less: SG&A Expenses 0.35 2. Change in Net
Long term liabilities 0.27375 0.2 Operating Income 0.2825
Common Stock 0.48 0.56 Interest Expenses 0.1 Working Capital
Retained Earnings 0.10625 0.1 Profit Before Tax 0.1825
Liabilities and Stockholders’ 1 1 Income Tax Expense 0.045
Equity Net Income 0.1375

a) Total common stock in the year 2017 was US $ 140,000

a) Total Asset in 2017 = 250,000

b) Retained Earning = 25,000

b) Dividend paid for 2018 was $ 6875 & Dividend payout ratio for the year was 50%.
a) Net Income = 13750 & Net Sales = $ 100,000
13750 ❑
c) Return on assets of Paradise Ltd was 5% 0.05=
250000+ 𝑥
a) Total Asset for 2018 = $ 300,000 2

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Common Size Balance Sheet 2018 2017 Common Size Income Statement For the year
Current Assets 0.2 0.2 ended 31/03/2018
Property, Plant & Equipment 0.5 0.4 Net Sales 1 Find:
Long-term Investments 0.3 0.4 Less: COGS 0.3675
1. Asset Turnover
Total Assets 1 1 Gross Profit 0.6325
Current Liabilities 0.14 0.14 Less: SG&A Expenses 0.35 2. Change in Net
Long term liabilities 0.27375 0.2 Operating Income 0.2825
Common Stock 0.48 0.56 Interest Expenses 0.1 Working Capital
Retained Earnings 0.10625 0.1 Profit Before Tax 0.1825
Liabilities and Stockholders’ 1 1 Income Tax Expense 0.045
Equity Net Income 0.1375

a) Asset Turnover
a) = 100000/275000 = 0.36
b) Change in NWC = (60000-42000) - (50000-35000) = 18000-15000 = 3000

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21 Semester | Shiv Nadar University