Question

Q2.

Required information

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The balance sheets for Federer Sports Apparel for 2022 and 2021 are presented below.

2. Prepare a horizontal analysis for 2022 using 2021 as the base year. (Note: If the percentage increase or decrease cannot be calculated, then leave the cell blank. Decreases should be indicated by a minus sign. Round your percentage answers to 1 decimal place.)

rev: 12_13_2019_QC_CS-193224

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Q3.

The 2021 income statement of Adrian Express reports sales of $13,797,000, cost of goods sold of $7,923,500, and net income of $1,530,000. Balance sheet information is provided in the following table.

ADRIAN EXPRESS Balance Sheets December 31, 2021 and 2020
	2021				2020
Assets
Current assets:
Cash	$	530,000			$	690,000
Accounts receivable		1,260,000				930,000
Inventory		1,660,000				1,330,000
Long-term assets		4,730,000				4,170,000
Total assets	$	8,180,000			$	7,120,000
Liabilities and Stockholders' Equity
Current liabilities	$	1,950,000			$	1,590,000
Long-term liabilities		2,230,000				2,330,000
Common stock		1,860,000				1,860,000
Retained earnings		2,140,000				1,340,000
Total liabilities and stockholders' equity	$	8,180,000			$	7,120,000

Industry averages for the following four risk ratios are as follows:

Average collection period	25 days
Average days in inventory	60 days
Current ratio	2 to 1
Debt to equity ratio	50%

Required:
1. Calculate the four risk ratios listed above for Adrian Express in 2021. (Use 365 days in a year. Round your answers to 1 decimal place.)

2. Do you think the company is more risky or less risky than the industry average?

• More risky

• Less risky

Answer 1

1

ACCOUNT RECIEVEBLE TURNOVER=CREDIT SALE/AVG ACCOUNT RECIEVEBLES

=13797000/1095000

=12.6

IE,DAY SALES IN RECIEVEBLES =365/12.6

(AVG COLLECTION PERIOD) =28.9

INVENTORY TURNOVER =COGS/AVG INVENTORY

=7923500/1495000

=5.3

AVERAGE DAYS IN INVENTORY=365/5.3

=68.8

CURRENT RATIO =CURRENT ASSET/CURRENT LIABILITIES

= 3450000/1950000

=1.76

DEBT TO EQUITY RATIO=DEBT/EQUITY

=4180000/4000000

=1.045

2

THE COMPONY IS IN MORE RISKY THAN THE INDUSTRY AVERAGE

AVERAGE COLLECTION PERIOD AND AVERAGE DAYS IN INVENTORY IS HIGHER THAN INDUSTRY AVERAGE.MEANS HIGH RISK

CURRENT ASSET AVG IS 2;1

BUT HERE IT IS LESS, 1.7;1 MEANS RISKIER THAN AVG

DEBT TO EQITY AVG IS 50%,BUT HERE IT IS 104.5% TOO HIGH,MUCH RISK