Consider a publicly held company whose products you are familiar with. Some examples might include: Access the
Question:
Consider a publicly held company whose products you are familiar with. Some examples might include:
Access the company’s public website and search for its most recent annual report. (Some companies will provide access to their financial data through an “investor relations” link, while others will provide a direct link to their “annual reports.”) After locating your company’s most recent annual report, open the file and review its contents. After reviewing the annual report for your selected company, prepare answers to the following questions:
a. Identify whether the company is a retailer, a manufacturer, or a service provider.
b. Review the company’s “Summary of Significant Accounting Principles.” When does the company recognize its operating revenue? Can you identify an alternative method to recognize its operating revenue?
If so, describe the alternative approach.
c. Review the company’s balance sheet and related footnotes. Identify the gross accounts receivable and the allowance for uncollectible accounts for each of the last two years. Calculate the ratio of the allowance for uncollectible accounts divided by the gross accounts receivable for each of the last two years. Is this ratio increasing or decreasing? Why?
d. Calculate the company’s receivable turnover and receivable collection period for each of the last two years. Is the receivable collection period increasing or decreasing? What might explain this increase or decrease?
e. Calculate the company’s cash collections from sales for each of the last two years. Using this calculation, compute the company’s cash conversion ratio (cash from sales divided by net sales). Is the cash conversion ratio increasing or decreasing? Is the cash conversion ratio at an acceptable level? Note that cash from sales is calculated as net sales plus/minus the change in accounts receivable plus/minus the change in unearned (or deferred) revenue.
Step by Step Answer:
Financial Accounting For Executives And MBAs
ISBN: 9781618531988
4th Edition
Authors: Wallace, Simko, Ferris
