Chapter 14 Financial Statement Analysis 434 Case Study CS-1 LO XXXXXXXXXX Suppose that you have decided to invest some money in the stock market. After some research online, you come across the...

Chapter 14 Financial Statement Analysis
434
Case Study
CS-1 LO XXXXXXXXXX
Suppose that you have decided to invest some money in the stock market. After some research online, you
come across the financial statements of Yong Wireless Limited. Before you can make a decision to invest in
the company, you will need to calculate some key financial ratios and then analyze them. The statements
are presented below.
yong Wireless limited
Consolidated Balance Sheet (in thousands)
As at Fe
uary 28
  XXXXXXXXXX
Assets  
Cash $1,550,861 $835,546
Short-Term Investments 360,614 682,666
Accounts Receivable 2,800,115 2,269,845
Merchandise Inventory 621,611 682,400
Other Cu
ent Assets XXXXXXXXXX, XXXXXXXXXX,129
total Cu
ent Assets 5,812,656 4,841,586
Long-Term Investment 958,248 720,635
Property, Plant and Equipment 1,956,581 1,334,648
Intangible Assets XXXXXXXXXX,476,924 1,204,503
total Assets $10,204,409 $8,101,372
   
liabilities  
Accounts Payable $615,620 $448,339
Accrued Liabilities 1,638,260 1,238,602
Income Taxes Payable 95,650 361,460
Other Cu
ent Liabilities XXXXXXXXXX, XXXXXXXXXX,950
total Cu
ent liabilities 2,431,777 2,115,351
Long-Term Liabilities 169,969 111,893
total liabilities 2,601,746 2,227,244
Stockholders' equity  
Common Stock 2,113,146 2,208,235
Retained Earnings 5,489,517 3,665,893
Stockholders' equity 7,602, XXXXXXXXXX,874,128
liabilities and Stockholders' equity $10,204,409 $8,101,372
Chapter 14Financial Statement Analysis
435
yong Wireless limited
Consolidated income Statement (in thousands)
For the year ended Fe
uary 28
  XXXXXXXXXX
Revenue $14,953,224 $11,065,186
Cost of Sales 8,368,958 5,967,888
gross Profit 6,584,266 5,097,298
Operating expenses  
Research and Development 964,841 684,702
Selling, Marketing and Admin 1,907,398 1,495,697
Amortization Expense 310,357 194,803
Litigation Expense 163, XXXXXXXXXX0
Total Operating Expenses 3,346,396 2,375,202
income from Operations 3,237,870 2,722,096
Other income and expenses
Investment Income XXXXXXXXXX, XXXXXXXXXX,267
Income before Income Tax Expense 3,266,510 2,800,363
Income Tax Expense XXXXXXXXXX, XXXXXXXXXX,747
net income $2,457,144 $1,892,616
yong Wireless limited
Summary of the Statement of Cash Flows (in thousands)
For the year ended Fe
uary 28
  XXXXXXXXXX
net Cash Provided by Operations $3,034,874 $1,451,845
net Cash Used by investing ($1,470,127) ($1,823,523)
net Cash Used by Financing ($849,432) $22,826
net increase (Decrease) in Cash $715,315 ($348,852)
equired
a) Calculate the following ratios for Yong Wireless Limited for 2019 and 2018. For any ratios that require an
average (i.e. ROE), use the closing balance for the year.
  XXXXXXXXXX
Gross Profit Margin
Net Profit Margin
Return on Equity
Return on Assets
Asset Turnove
Cu
ent Ratio
Quick Ratio
Debt-to-Equity Ratio
Chapter 14 Financial Statement Analysis
436
) Based on the figures you calculated, has the company shown improvement in 2019 over 2018? Would
you invest in Yong Wireless Limited? Explain.
CS-2 LO XXXXXXXXXX
The following information has been taken from the financial statements of Ivory Inc.
ivory inc.
Cu
ent Assets, December 31, 2019 $175,000
Total Assets, January 1, XXXXXXXXXX,000
Total Assets, December 31, XXXXXXXXXX,000
Cu
ent Liabilities, December 31, XXXXXXXXXX,000
Total Liabilities, December 31, XXXXXXXXXX,000
Stockholders’ Equity, January 1, XXXXXXXXXX,000
Stockholders’ Equity, December 31, XXXXXXXXXX,000
Net Sales 900,000
Depreciation Expense 10,000
Interest Expense 20,000
Income Tax Expense 25,000
Net Income 40,000
equired
a) Given the data for Ivory Inc., calculate the following ratios for 2019 (round to two decimal places). The
company’s ratios for 2018 are given for comparison.
atio 2018
i) Cu
ent Ratio 3.5
ii) Times Interest Earned Ratio 5.40
iii) Debt-to-Equity 25.00%
iv) Return on Assets 12.50%
v) Return on Equity 20.20%
vi) Net Profit Margin 8.60%
Chapter 14Financial Statement Analysis
437
atio 2019


) Using 2019 as a comparison, discuss whether the company improved or deteriorated in its ability to
(i) pay cu
ent liabilities as they come due, (ii) meet its long-term debt obligations and (iii) profitability.
Be sure to make reference to specific ratios in your answers.