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Chapter 5 Solutions Chap 5 Solution

This document contains solutions to chapter 5 questions from a financial reporting analysis textbook. It discusses key concepts like ratios, common-size analysis, absolute and percentage changes, and trend analysis. Examples are provided to illustrate how to calculate various ratios and analyze comparative financial statements. The document aims to help students understand the basics of financial statement analysis.

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tuanminh2048
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386 views

Chapter 5 Solutions Chap 5 Solution

This document contains solutions to chapter 5 questions from a financial reporting analysis textbook. It discusses key concepts like ratios, common-size analysis, absolute and percentage changes, and trend analysis. Examples are provided to illustrate how to calculate various ratios and analyze comparative financial statements. The document aims to help students understand the basics of financial statement analysis.

Uploaded by

tuanminh2048
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Chapter-5-Solutions - chap 5 solution

Financial reporting analysis (Đại học Kinh tế Quốc dân)

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CHAPTER 5: BASICS OF ANALYSIS

1. Q.5-1: What is a ratio? How do ratios help to alleviate the problem of size differences
among firms?
(Cuối trang 199 + Đầu trang 200)
− Financial ratios are usually expressed as a percent or as times per period and can be
computed from any pair of numbers. (có thể được tính từ bất kỳ cặp số nào).
− Ratios make the comparions in relative, rather than absolute, term, which help
alleviate the problem of size difference.
− A ratio will usually represent a fairly accurate trend, even when the ratio is distorted.
If the ratio is distorted, then it does not represent a good absolute number.

2. Q.5-2: What does each of the following categories of ratios attempt to measure? (a)
liquidity; (b) long-term, borrowing capacity; (c) profitability. Name a group of userswho
might be interested in each category
(Cuối page 199 và trang 216)

− Liquidity ratios measure a firm’s ability to meet its current obligations.


− Borrowing capacity (leverage) ratios measure the degree of protection of suppliers
of long-term funds.
− Profitability ratios measure the earning ability of a firm

3. Q.5-4: Differentiate between absolute and percentage changes. Which is generally a


better measure of change? Why?

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4. Q.5-6: What is trend analysis? Can it be used for ratios? For absolute figures?
(Page 208)
− Trend analysis studies the financial history of a firm for comparison.
− It can be used for ratios.

5. Q.5-7: Suppose you are comparing two firms within an industry. One is large and the
other is small. Will relative or absolute numbers be of more value in each case? What
kinds of statistics can help evaluate relative size?
(Page 213)
− Relative numbers will be of more value in this case.
− Ratios and common-size analysis help to eliminate some of the problems related to
the use of absolute numbers.
− The relative amounts of sales, assets, or profit help evaluate relative size.

6. Q.5-8: Are managers the only users of financial reports? Discuss.

Trang 215 + 216

7. P 5-1 Best Buy Co., Inc.’s consolidated balance sheets from its 2011 annual report are
presented in Exhibit 5-3.
Required

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a. Using the balance sheets, prepare a vertical common-size analysis for 2011 and 2010.
Use total assets as a base.

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b. Using the balance sheets, prepare a horizontal common-size analysis for 2011 and
2010. Use 2010 as the base.

c. Comment on significant trends that appear in (a) and (b).

8. P 5-3 The Kelly Services, Inc., and Subsidiaries balance sheets from its 2010 annual
report are presented in Exhibit 5-4.
Required

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a. Using the balance sheets, prepare a vertical common-size analysis for 2010 and 2009.
Use total assets as a base.

b. Using the balance sheets, prepare a horizontal common-size analysis for 2010 and
2009. Use 2009 as the base.

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c. Comment on significant trends that appear in (a) and (b).

9. P 5-5 Required Determine the absolute change and the percentage for these items.

10. P 5-6 Required Determine the absolute change and the percentage for these items.

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11. P 5-7 Rapid Retail Comparative Statements of Income December 31 Increase (Decrease)
(In thousands of dollars)
Required
a. Complete the increase (decrease) in dollars and percent.
b. Comment on trends.

12. P.5-8: Answer the following multiple-choice questions:

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