ED-15 Performing horizontal analysis—income statement
Data for Mariner Designs, Inc. follow:
MARINER DESIGNS, INC.
Comparative Income Statement
Years Ended December 31, 2015 and 2014
Net Sales Revenue $ 431,000 $ 372,350

Expenses:
Cost of Goods Sold 200,000 187,550
Selling and Administrative Expenses 99,000 91,050
Other Expenses 8,350 6,850
Total Expenses 307,350 285,450
Net Income $ 123,650 $ 86,900
Requirements
1. Prepare a horizontal analysis of the comparative income statement of Mariner
Designs Inc. Round percentage changes to the one decimal place/
2. Why did 2015 net income increase by a higher percentage than net sales
revenue?


ED-20 Computing key ratios
The financial statements of Victor’s Natural Foods included the following:
Current Year Preceding Year
Balance Sheet:
Cash $ 15,000 $ 20,000
Short-term Investments 11,000 27,000
Net Accounts Receivables 54,000 73,000
Merchandise Inventory 77,000 69,000
Prepaid Expenses 15,000 9,000
Total Current Assets 172,000 198,000
Total Current Liabilities 133,000 93,000
Income Statement:
Net Credit Sales $ 462,000
Cost of Goods Sold 315,000
Compute the following ratios for the current year:
a. Current ratio
b. Cash ratio
c. Acid-test ratio
d. Inventory turnover
e. Days’ sales in inventory
f. Days’ sales in receivables
g. Gross profit percentage



ED-21 Analyzing the ability to pay liabilities
Large Land Photo Shop has asked you to determine whether the company’s ability
to pay current liabilities and total liabilities improved or deteriorated during 2015.
To answer this question, you gather the following data:
2015 2014
Cash $ 58,000 $ 57,000
Short-term Investments 31,000 0
Net Accounts Receivables 110,000 132,000
Merchandise Inventory 247,000 297,000
Total Assets 585,000 535,000
Total Current Liabilities 255,000 222,000
Long-term Note Payable 46,000 48,000
Income From Operations 180,000 153,000
Interest Expense 52,000 39,000
Compute the following ratios for 2015 and 2014, and evaluate the company’s
ability to pay its current liabilities and total liabilities:
a. Current ratio
b. Cash ratio
c. Acid-test ratio
d. Debt ratio
e. Debt to equity ratio


Comprehensive Problem for Appendix D
Analyzing a company for its investment potential
In its annual report, WRS Athletic Supply Inc included the following five-year financial summary.
WRS ATHLETIC SUPPLY, INC.
Five-Year Financial Summary (Partial; adapted)
(Dollar amounts in thousands except per share data) 2018 2017 2016 2015 2014 2013
Net Sales $244,524 $217,799 $191,329 $165,013 $137,634
Net Sales Increase 12% 14% 16% 20% 17%
Domestic Comparative Store Sales Increase 5% 6% 5% 8% 9%
Other Income—Net 2,001 1,873 1,787 1,615 1,391
Cost of Goods Sold 191,838 171,562 150,255 129,664 108,725
Operating, Selling, and General and Administrative Expenses 41,236 36,356 31,679 27,408 22,516
Interest:
Interest Expense (1,063) (1,357) (1,383) (1,045) (803)
Interest Income 138 171 188 204 189
Income Tax Expense 4,487 3,897 3,692 3,338 2,740
Net Income 8,039 6,671 6,295 5,377 4,430
Per Share of Common Stock:
Net Income 1.81 1.49 1.41 1.21 0.99
Dividends 0.30 0.28 0.24 0.20 0.16
Financial Position
Current Assets, Excluding Merchandise Inventory $ 30,483 $ 27,878 $ 26,555 $ 24,356 $ 21,132
Merchandise Inventory at LIFO Cost 24,891 22,614 21,442 19,793 17,076 $16,497
Property, Plant, and Equipment, Net 51,904 45,750 40,934 35,969 25,973
Total Assets 94,685 83,527 78,130 70,349 49,996
Current Liabilities 32,617 27,282 28,949 25,803 16,762
Long-term Debt 22,731 21,143 17,838 18,712 12,122
Shareholders’ Equity 39,337 35,102 31,343 25,834 21,112
Financial Ratios
Acid-test Ratio 0.9 1.0 0.9 0.9 1.3
Rate of Return on Total Assets 10.2% 9.9% 10.3% 10.7% 9.6%
Rate of Return on Shareholders’ Equity 21.6% 20.1% 22.0% 22.9% 22.4%

Requirements
1. Analyze the company’s financial summary for the fiscal years 2014–2018 to
Decide whether to invest in the common stock of WRS. Include the following
sections in your analysis, and fully explain your final decision.
1. Trend analysis for net sales and net income (use 2014 as the base year).
2. Profitability analysis.
3. Evaluation of the ability to sell merchandise inventory ( WRS uses the LIFO method)
method).
4. Evaluation of the ability to pay debts.
5. Evaluation of dividends.

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