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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
...


2
...
The notes call attention to such items as pending
problems, contingent liabilities, and circumstances surrounding certain
judgments that were made in measuring and reporting
...


3
...
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
...
Comparative
statements usually report only two consecutive periods which often is too
short to assess adequately certain trends
...


Statement users are interested especially in financial summaries covering
several years because the long-term trends of the business are revealed
...
Long-term financial
summaries provide particularly useful information in making these
projections
...

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
...
Ratio analysis is a technique for computing and pinpointing certain
significant relationships in the financial statements
...
This is proprietary material solely for authorized instructor use
...
This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part
...
A ratio is computed by dividing one
amount by another amount; the divisor is known as the base amount
...
Ratio analysis is particularly useful because it may reveal critical
relationships that are not readily apparent from absolute dollar amounts
...
Component percentages are representations, as ratios or percents, of the
relationships between each of the several individual amounts that make up a
single total
...
The resulting ratios or percentages will sum to
100 percent
...

7
...
The
two concepts of return on investment are:
(a) Return on equity (net income divided by owners’ investment)
...

(b) Return on assets (return on total assets, which includes both owners’
equity and creditors’ equity)
...
The computation is net income plus after-tax
interest expense divided by total assets
...
Return on equity reflects the viewpoint of the owners
because it measures the net return on their investment only
...
e
...

8
...
This difference is
caused only by interest on debt
...
This advantage accrues to the benefit of the stockholders
(i
...
, positive leverage)
...


Profit margin is the ratio between net income and net sales
...
e
...

Profitability is best measured as the ratio of income to investment
...
The current ratio is computed by dividing total current assets by total current
liabilities
...
e
...
This is proprietary material solely for authorized instructor use
...
This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part
...

Time
1
5
2
5
3
5
4
5
5
5
6
5
7
5
8
5
9
5
10
5

Exercises
No
...

Time
1
60
2
45
3
60
4
20
5
60
6
30
7
60
8
30
9
20
10
50

Alternate
Problems
No
...

Time
1
50
2
50
3
60
4
45
5
20
6
30
7
*

* Due to the nature of this project, it is very difficult to estimate the amount of
time students will need to complete the assignment
...
While students often benefit from the extra effort, we find that
some become frustrated by the perceived difficulty of the task
...
For example,
when our goal is to sharpen research skills, we devote class time to discussing
research strategies
...


13–4

Solutions Manual

© 2014 by McGraw-Hill Global Education Holdings, LLC
...
Not authorized for sale or
distribution in any manner
...


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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

MINI-EXERCISES
M13–1

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