Free Essay on Financial Reporting and Analysis

Calculate debt/ equity ratio

For one to calculate the debt-equity ratio, we divide the total liabilities divided by the shareholder's equity.

Debt/equity ratio=

Debt /Equity ratiototal liabilitiesshare holder'sEquityDeriving data from the problem,

$174,979$249,222Debt/equity ratio=70.21%

Calculate the ratio of the total debt to tangible net worth

Debt to tangible Net Worth ratio=total liabilities shareholder's equity-intangible assetsDeriving the information from the data,

Total liabilities are$174,979

Shareholder's equity is $249,222

Intangible assets are $2324

=$174,979249,222-2324174,979246,89870.87%

Hence, debt to tangible, net worth ration is = 70.87%

The debt ratio for Kaufman as we have established is 41.24%. Therefore, the minimal debt ratio, depends lesser on the external borrowings. Given that the debt-equity ratio is 70.21%, the company possesses more loans that are unsettled and more interest reimbursements. Higher debt to tangible net worth ratio shows more risks because of more debts. Hence, Kaufman Company is not making sufficient earning to meet its duties.

Problem 7-10

Computation of the times interest earned ratio for the years 2007-2011

Times interest earned (2011) = recurring Earnings-interest expenseinterest expense$280,000-$156,000$17,000= 7.29 times in a year.

Times interest earned (2010) =recurring Earnings-interest expenseinterest expenseTimes interest earned (2010)=$302,000-$157,00$16,000= 9.06 times per year

Times interest earned (2009)= recurring Earnings-interest expenseinterest expenseTimes interest earned (2009)= $286,000-$154,000$15,000Times interest earned (2009) =8.80 times per year

Times interest earned (2008)= recurring Earnings-interest expenseinterest expenseTimes interest earned (2008)=$$270,000-$150,000$14,500Times interest earned (2008)= 8.28 times per year

Times interest earned (2007) = recurring Earnings-interest expenseinterest expenseTimes interest earned (2007) =$248,000-$147,000$23,000Times interest earned (2007) =4.39 times per year

Computation of Fixed charges coverage

Fixed Coverage ratio (2011) = recurring earnings-interest expense+interest portion of rentals interest expense+interest portion of rentalsFixed Coverage ratio (2011) =$$280,000-$156,000+30,000/3$170,000+$30,000/3=134,00027,000= 4.96 times per year

Fixed Coverage ratio (2010)= recurring earnings-interest expense+interest portion of rentals interest expense+interest portion of rentals=$$302,000-$157, 000+27000/3$16,000+27,000/3$154,00025000=6.16 times per year

Fixed Coverage ratio (2009) recurring earnings-interest expense+interest portion of rentals interest expense+interest portion of rentals= $286,000-154,000=28,500/3$15,000+28,500/3=$141,500$24,5005.77 times annually

Fixed Coverage ratio (2008)= recurring earnings-interest expense+interest portion of rentals interest expense+interest portion of rentals=$270,000-$150,00+$30,000/314,500+$30,000/3=$130,00024, 500=5.31 times per year

Fixed Coverage ratio (2007)= recurring earnings-interest expense+interest portion of rentals interest expense+interest portion of rentals=$248,000-$147,000+9,000$23,000+$9,000=$110,000$32,0003.44 times per year

c. Computation of Debt ratio

The debt ratio highlights the company's long-term paying debt-paying capability. Lower debt ratio affirms that creditors have financed only a small portion of assets of the company.

Debt Ratio(2011)= Total Liabilties total assets =$88,000+$170,000$560,000= 46.07%

Debt Ratio(2010)= Total Liabilties total assets =$89,500+$168,000$554,000=46.48%

Debt Ratio(2009)= Total Liabilties total assets =90,500+$165,000$553,000=46.14%

Debt Ratio(2008)= Total Liabilties total assets = $90,000=$164,000$548,000=46.31%

Debt Ratio(2007)= Total Liabilties total assets =$91,500+$262,000$537,000=65.83%

D. calculation of debt/equity ratio

The debt/equity ration portrays how the creditors are well, protected in a case of bankruptcy. Hence, the lower the ratio is, the better the company's debt position.

Debt /Equity ratio (2011) total liabilitiesshare holder'sEquity=$88,000+$170,000$302,00085.43%

Debt /Equity ratio(2010)total liabilitiesshare holder'sEquity$89,500+168,000$296,000= 86.99%

Debt /Equity ratio(2009)total liabilitiesshare holder'sEquity=$90,500+$168,000$296,000=86.99%

Debt /Equity ratio(2008)total liabilitiesshare holder'sEquity=$90,000+$164,000$294,500= 86.25%

Debt /Equity ratio(2007)total liabilitiesshare holder'sEquity$91,500+$262,000$183,500=192.64%

e. computation of debt to tangible net worth ratio

the debt to tangible net worth ratio likewise influences the firm's long-term debt paying ability.

Debt to tangible net worth ratio (2011)= total liabilities stockholder's equity-intangible assets=$88,000+$170,000$302,000-$20,000=91.49%

Debt to tangible net worth ratio (2010)= total liabilities stockholder's equity-intangible assets$89,500+$168,000$296,000-$18,000=92.62%

Debt to tangible net worth ratio(2009)= total liabilities stockholder's equity-intangible assets$90,500+$165,000$298,300-$17,000=90.83%

Debt to tangible net worth ratio(2008)= total liabilities stockholder's equity-intangible assets$90,000+$164,000$294,500-$15,000= 91.20%

Debt to tangible net worth ratio (2007)= total liabilities stockholder's equity-intangible assets$91,500+$262,000$183,500-$15,000209.79%

2. Debt position and the patterns showed in the long-term paying ability

Times interest earned anmd the fixed charge coverage ratios are favorable as these ratios reduced in 2011.

The debt ratio, debt/equity ratio, and debt to tangible net worth substantially were better in 2007and 2008 since equity surged compared to the long-term liabilities.

From the period 2007-2011, the ratios were fixed and appeared to be favorable. Debt/equity ratio is better than the debt to tangible net worth ratio as because of the intangible assets.

Question 8-4

The profit margin in a quality jewelry store is different from that of a grocery store since at jewelry store, the profit margin changes from customer to customer. However, in a grocery store, it remains fixed for all the clients.

Question 8.8

Equity earnings, are the owner's balanced share of the non-combined lesser earnings. These earnings are generally higher that the casg from the profits from the non-combined subsidiary.

Question 8-11

Return ion investment is a profitability measure that compares income to the capital used by the entity. Some measures are return on assets, return on equity, or income available to all the main sources and then divided by capital. The given ratio is opted for since it calculates the profit available to all the long-term sources of capital against that capital. The interest is thereafter multiplied by tax adjustment factor to put interest on an after-tax basis.

Question 8-15

Comprehensive income is comprised of the net fluctuations in

Foreign currency, translation adjustments

Unrealized holding profits and losses on the ready-for sale marketable securities

Changes to stockholder's equity coming from extra minimum pension liability changes.

All the above items will fluctuate often more than any other income items.

Calculation of Net profit Margin

Net profit margin(2011)= Net profit net sales72,700980,000*100=7.42%

Net profit margin(2010)= Net profit net sales64,900960,000*100=6.76%

Net profit margin(2009)= Net profit net sales$57,800$940,000*100=6.15%

Calculation of asset turnover

Asset turnover ratio (2011)= net sales average total assets980,000(859,000+861,000)/2*100= 1.14

Asset turnover ratio (2010)= net sales average total assets960,000(861,000+870,000)/2*100= 1.11

Asset turnover ratio (2011)= net sales average total assets940,000(861,000+870,000)/2*1001.08

c. Return on assets

Return on assets (2011) = net profitAverage total assets=$72, 700(859,000+861,000)/2*1008.45%

Return on assets (2010) = net profitAverage total assets64,900(861,000+870,000)/2*1007.50%

Return on assets (2009) = net profitAverage total assets57,800(870,000+867,000)/2*100= 6.66%

DuPont return on assets

Return on assets( 2011)= net profit margin*Asset turnover

7.42*1.14times

=8.46%

Return on assets( 2010)= net profit margin*Asset turnover

6.76*1.11

=7.50%

Return on assets( 2009)= net profit margin*Asset turnover

6.15*1.08=

6.64%

Operating income margin

Return on operating assets (2011)= operating income average total operating assets115,000(859,000.-80,000+861,000-85,000)/2*10014.79%

Return on operating assets (2010)= operating income average total operating assets104,000(861,000-85,000+870,000-90,000)/2*100=13.50%

Return on operating assets (2009)= operating income average total operating assets95,000(870,000-90,000+867,000-95000)/2*100=12.24%

Operating asset turnover

Operating asset turnover ratio (2011)= net salesaverage total operating assets980,000777,500= 1.26 times

Operating asset turnover ratio(2010)= net salesaverage total operating assets960,000778,000=1.23 times

Operating asset turnover ratio= net salesaverage total operating assets940, 000776, 0001.21 times

References

Gibson, C. (2012). Financial Reporting and Analysis (13th ed., pp. 301- 342). Cengage Learning.