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4/9/24, 11:48 AM

Solution Manual Financial Accounting 8th Edition by Libby Libby and Short …

Chapter 13 - Analyzing Financial Statements

Chapter 13
Analyzing Financial Statements

ANSWERS TO QUESTIONS
1
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2
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The notes call attention to such items as pending
problems, contingent liabilities, and circumstances surrounding certain
judgments that were made in measuring and reporting
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3
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For example, the trends of such
factors as sales, expenses, income, amount of debt, retained earnings, and
earnings per share are particularly important in assessing the record of the
company in the past and the present
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Comparative
statements usually report only two consecutive periods which often is too
short to assess adequately certain trends
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Statement users are interested especially in financial summaries covering
several years because the long-term trends of the business are revealed
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Long-term financial
summaries provide particularly useful information in making these
projections
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The primary limitation of unusually long-term summaries is that early years
may not be useful because of changes in the business, industry, and
environment
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Ratio analysis is a technique for computing and pinpointing certain
significant relationships in the financial statements
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This is proprietary material solely for authorized instructor use
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This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part
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A ratio is computed by dividing one
amount by another amount; the divisor is known as the base amount
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Ratio analysis is particularly useful because it may reveal critical
relationships that are not readily apparent from absolute dollar amounts
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Component percentages are representations, as ratios or percents, of the
relationships between each of the several individual amounts that make up a
single total
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The resulting ratios or percentages will sum to
100 percent
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7
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The
two concepts of return on investment are:
(a) Return on equity (net income divided by owners’
1,067
2
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66%$ 2,010

%
Jan 29,
Sales
2010
100
...
86
30,757
35
...
60
3
...
68
28
...
61
2
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12 %$

11,737
1,614
287
13,638
2,825
1,042
1,783

%
Sales
100
...
14
34
...
85
3
...
61
28
...
98
2
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78%

There is a decline in net earnings as a percent of sales and gross margin from
2011 to 2012
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Management should
focus on reducing selling, general and administrative costs
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This is proprietary material solely for authorized instructor use
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This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part

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