Financial Statement Analysis provides information that indicates how a company is performing. By comparing financial statements of different years, a manager can make informed decisions about investments, expenditures, and activities that impact revenues.
Directions: Read the chapter in the text titled “Financial Statement Analysis.” Using the comparative financial statements for Baby Cakes International Inc. (see “BabyCakes_Financial_Project_Data.xls” linked in the lesson activities) , complete the following tasks.
Note: The market price of BabyCakes Int’l, Inc. common stock was $20 on December 31, 2008.
Part A: Complete the 19 ratios listed below.
Determine the following measures for 2008:
1. Working Capital
2. Current ratio
3. Quick ratio
4. Accounts receivable turnover
5. Number of days’ sales in receivables
6. Inventory turnover
7. Number of days’ sales in inventory
8. Ratio of fixed assets to long-term liabilities
9. Ratio of liabilities to stockholders’ equity
10. Number of times interest charges earned
11. Number of times preferred dividends earned
12. Ratio of net sales to assets
13. Rate earned on total assets
14. Rate earned on stockholders’ equity
15. Rate earned on common stockholder’s equity
16. Earnings per share on common stock
17. Price-earnings ratio
18. Dividends per share of common stock
19. Dividend yield
Part B: Explain what the results of each ratio indicate about the company.
Part C: Complete a horizontal analysis for the Income Statement, and explain your findings.
Part D: Complete a vertical analysis for the Income Statement, and explain your findings.