Summer Corporation has just completed its comparative statements for the year ended December 31, 2015. At this point, certain analytical and interpretive procedures are to be undertaken. The completed statements (summarized) are as follows:
1. Compute appropriate ratios for 2015 and explain the meaning of each.
2. Answer the following for 2015:
a. Evaluate the financial leverage percentage. Explain its meaning by using the computed amount(s).
b. Evaluate the net profit margin ratio and explain how a shareholder might use it.
c. Explain to a shareholder why the current ratio and the quick ratio are different. Do you observe any liquidity problems? Explain.
d. Assuming that credit terms are 1/10, n/30, do you perceive an unfavourable situation for the company related to credit sales? Explain.
e. By how much should the balance of trade receivables decrease if the company wishes to reduce its average collection period to 30 days?

  • CreatedAugust 04, 2015
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