ACTIVITY 107 TEST YOUR UNDERSTANDING - CIRCUIT CITY Purpose: - Analyze the income statement, the balance sheet, and the statement of cash flows. Circuit City (CCYTQ) STATEMENT OF CASH FLOWS (\$ in millions) Refer to the financial statements presented for Circuit City on the previous two pages to answer the following questions. BALANCE SHEET Q1 Review the following accounts, subtotals, and totals; (1) describe your observations; and then (2) identify what your observations indicate. A response is given for Current Assets to help with understanding. a. Current assets... decreased in Year 7 due to a sharp decline in short-term investments and a dip in inventory. The buildup of accounts receivable accompanied by a decrease in inventory is cause for concern, indicating credit terms might be too lax. b. Noncurrent assets... c. Total assets... d. Total liabilities... e. Retained earnings... f. Stockholders' equity... Q2 Compute the ratios requested in the chart below. For ratio formulas and explanation refer to Appendix B-Ratios. * Industry: Electronics Stores-Industry ratio averages from money.msn.com For each ratio, (a) compare the two years of company ratios and circle the ratio indicating lower financial risk, (b) cross out any company ratio indicating greater financial risk than the industry norm, and (c) comment on the results. Q3 Overall, the balance sheet and related ratios indicate a (strengthening / steady / weakening) financial position. Why? List observations that support your conclusion and explain why. INCOME STATEMENT Q4 Revenues were: million for the earliest year reported and : million for the most recent year reported. Since the earliest year reported, this account has changed by $ million, which is a % (increase / decrease). During the same time period, COGS (increased/decreased) by ', total operating expenses (other than COGS) (increased / decreased) by b, and net income (increased / decreased)