Financial accounting 16th Edition by Jan Williams,Susan Haka,Mark Bettner ,Joseph Carcello

تمرين 62

ANALYSIS OF THE FINANCIAL STATEMENTS OF A PUBLICLY OWNED CORPORATION
This Comprehensive Problem is to acquaint you with the content of the 2012 financial statements of Home Depot, Inc. reproduced in Appendix A of this textbook.The 2012 financial statements are for the fiscal year ended February 3, 2013.) The problem contains three major parts, which are independent of one another: Part I is designed to familiarize you with the general contents of a company's financial statements; Part II involves analysis of the company's liquidity; and Part III analyzes the trend in its profitability.
If you work this problem as a group assignment, each group member should be prepared to discuss the group's findings and conclusions in class.A good starting point for understanding the financial statements of a company such as Home Depot, Inc. is to understand the accounting policies used in preparing those statements.he first note accompanying the financial statements provides a brief description of the major accounting policies the company used.ost of the areas discussed in this note have been covered in this text.
Part I Annual reports include not only comparative financial statements but also other sources of information, such as:
• A multiyear summary of financial highlights, a summary of key statistics for the past 5 or 10 years.
• Several pages of Notes that accompany the financial statements.
• Reports by management and by the independent auditors in which they express their respective responsibilities for the financial statements.
Instructions
Answer each of the following questions and explain where in the statements, notes, or other sections of the annual report you located the information used in your answer.
a.ow many years are covered in each of the primary comparative financial statements Were all of these statements audited Name the auditors.hat were the auditors' conclusions concerning these statements
b.ome Depot, Inc. combines its statement of retained earnings with another financial statement.here are details about changes in the amount of retained earnings found
c.ver the three years presented, have the company's annual net cash flows been positive or negative from ( 1 ) operating activities, ( 2 ) investing activities, and ( 3 ) financing activities Has the company's cash balance increased or decreased during each of these three years
Part II Assume that you are the credit manager of a medium-size supplier of building materials and related products.ome Depot wants to make credit purchases from your company, with payment due in 60 days.
Instructions
a.s general background, read the first note to the financial statements, "Summary of Significant Accounting Policies." Next, compute the following for the fiscal years ending February 3, 2013, and January 29, 2012 (round percentages to the nearest tenth of 1 percent, and other computations to one decimal place):
1.urrent ratio.
2.uick ratio.
3.mount of working capital.
4.ercentage change in working capital from the prior year.
5.ercentage change in cash and cash equivalents from the prior year.
b.n the basis of your analysis in part a, does the company's liquidity appear to have increased or decreased during the most recent fiscal year Explain.
c.ther than the ability of Home Depot to pay for its purchases, do you see any major considerations that should enter into your company's decision Explain.
d.our company assigns each customer one of the four credit ratings listed below.ssign a credit rating to Home Depot, Inc. and write a memorandum explaining your decision.In your memorandum, you may refer to any of your computations or observations in parts a through c, and to any information contained in the annual report.)
POSSIBLE CREDIT RATINGS
A Outstanding Little or no risk of inability to pay.or customers in this category, we fill any reasonable order without imposing a credit limit.he customer's credit is reevaluated annually.
B Good Customer has good debt-paying ability but is assigned a credit limit that is reviewed every 90 days.rders above the credit limit are accepted only on a cash basis.
C Marginal Customer appears sound, but credit should be extended only on a 30-day basis and with a relatively low credit limit.reditworthiness and credit limit are reevaluated every 90 days.
D Unacceptable Customer does not qualify for credit.
Part III As general background, study the "Five-Year Summary of Financial and Operating Results."
Instructions
a.ompute the following for the fiscal years ending February 3, 2013, and January 29, 2012 (round percentages to the nearest tenth of 1 percent):
1.ercentage change in net sales (relative to the prior year).
2.ercentage change in net earnings.
3.ross profit rate.
4.et income as a percentage of sales.
5.eturn on average total assets.
6.eturn on average total equity.
b.rite a statement that describes your conclusion(s) concerning trends in Home Depot 's profitability during the period covered in your analysis in part a above.ustify your conclusion(s).