(a) Compute the financial ratios listed in Exhibit 3-2 for Lakeside for the years ended December 31, 2010 and December 31, 2011. Comment on any large fluctuations, unusual fluctuations, or lack of expected fluctuations. Also, give an overall conclusion as to the significance of the change in Lakeside’s liquidity, solvency, and profitability positions from 2010 to 2011. Use the following format. [Use Case3.xls for a spreadsheet to compute the ratios].
Ratio
2010
2011
Significance of Change
Current
1.35
1.35
No significant fluctuation, indicating a stable liquidity position (based on this measure of liquidity)
Average Days Inventory on Hand
Average Days to Collect Receivables
Debt-to-Total Assets Ratio
Times Interest Earned
Profit Margin
Return on Assets
Return on Equity
Overall Conclusion:
(b)Compare the year 2011 financial ratios computed for Lakeside above to the industry average ratios included in Exhibit 3-3. Comment on any large fluctuations, unusual fluctuations, or lack of expected fluctuations. Also, give an overall conclusion as to the significance of the difference between Lakeside’s liquidity, solvency, and profitability positions in 2011 and the industry average positions. Use the following format.
The Essay on Profitability Ratios, Liquidity Ratio and Account Principles
Accounting Principles and Concepts Business Entity - the business is seen as a separate entity from its owner(s). Going Concern – this concept assumes that the entity will continue to operate in the foreseeable future, unless there is a clear evidence to the contrary. The balance sheet and profit and loss account on the basis that the assets will not be liquidated but have a continuing value to ...
Ratio
Industry Ave.
Lakeside 2011
Significance of Change
Current
2.16
1.35
Lakeside is below the industry average. This may indicate short-term solvency problems
Average Days Inventory on Hand
Average Days to Collect Receivables
Debt-to-Total Assets Ratio
Times Interest Earned
Profit Margin
Return on Assets
Return on Equity
Overall Conclusion:
(c)Scan each of the financial statements and the trial balances included in Exhibits 3-4 through 3-7. Comment on any unusual accounts, account balances, or large, unusual, or lack of expected fluctuations from the previous year. You should find at least 10 items. [Note: you may have more than one “finding” for each procedure]. Use the following format:
Procedure
Findings
Significance
Scan the trial balance.
1. A debit balance appears in the “Allowance for Doubtful Accounts” account. 2.
1. Bad accounts may be increasing or a debit entry may have been misposted. 2.
Scan the income statement.
Scan the balance sheet.
Scan the statement of cash flows.
