Riaz Academy
Financial Statement Analysis by Charles H Gibson Solutions
Chapter # 12 Special Companies
G Ads:
P 12-1 The following
are statistics from the annual report of McEttrick National Bank:
are statistics from the annual report of McEttrick National Bank:
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Solution:
G Ads:
P 12.2: The following are statistics from the annual report of Dover Bank:
Required
a. Calculate the following for 2011, 2010, and 2009:
1. Earning assets to total assets
2. Interest margin to average earning assets
3. Loan loss coverage ratio
4. Equity to total assets
5. Deposits times capital
6. Loans to deposits
b. Comment on trends found in the ratios computed in (a).
G Ads:
Solution:
B. Earning assets to total assets has increased. This indicates that management has improved in putting bank assets to work. Interest margin to average earning assets have increased. This indicates improved profitability.
The loan loss coverage ratio has increased, indicating an improved level of protection of loans.
Equity to total assets increased, indicating an improved cushion against the risk of using debt and leverage.
Deposits times capital increased, indicating a prospect of a higher return to shareholders.
Loans to deposits increased, indicating increased risk.
G Ads:
P 12.3: Super Power Company reported the following statistics in its statements of income:
G Ads:
Required
a. Calculate the operating ratio and comment on the results.
b. Calculate the time’s interest earned and comment on the results.
c. Perform a vertical common-size analysis of revenues, using total revenue as the base, and comment on the relative size of the component parts.
Solution:
This utility has experienced a heavy increase in interest expense, causing a decline in the times interest earned.
There has been a rise in residential usage, and this causes a proportionate increase in revenue from this source. Commercial use has not fallen.
G Ads:
P 12.4: The following statistics relate to Michgate, an electric utility:
Required
a. Calculate the following for 2011, 2010, and 2009:
1. Operating ratio
2. Funded debt to operating property
3. Percent earned on operating property
4. Operating revenue to operating property
b. Comment on trends found in the ratios computed in (a).
c. Comment on the trend between earnings per share and cash flow per share.
Solution:
b. The operating ratio decreased, indicating improved efficiency. Funded debt to operating property decreased, indicating less risk because a lower percentage of funds were supplied by funded debt.
Percent earned to operating property increased, indicating improved profitability. Operating revenue to operating property increased, indicating improved profitability.
c. Cash flow per share has increased much more than earnings per share. This would be considered to be positive.
G Ads:
P 12.5: Local Airways had the following results in the past two years:
Required: Calculate the following for 2011 and 2010:
a. The operating ratio and comment on the trend.
b. The long-term debt to operating property ratio. What does this tell about debt use?
c. The operating revenue to operating property and comment on the trend.
d. The revenue per passenger mile. What has caused this trend?
Solution:
This firm is having profit problems. Expenses have increased faster than revenues.
This firm is using more debt in absolute terms and in relation to the operating property.
The turnover has remained relatively constant.
The firm is generating more revenue per passenger mile but is suffering from a serious decline in passenger miles.
G Ads:
P 12.6: Chihi Airways had the following results for the past three years:
Required
a. Calculate the following for 2011, 2010, and 2009:
1. Operating ratio
2. Long-term debt to operating property
3. Operating revenue to operating property
b. Comment on trends found in the ratios computed in (a).
c. Comment on the passenger load factor.
Solution:
G Ads:
b. The operating ratio decreased significantly, indicating improved profitability.
Long-term debt to operating property increased slightly, indicating a slight increase in risk.
Operating revenue to operating property increased moderately, indicating improved profitability.
c. The passenger load factor increased materially, indicating improved profitability.
P 12-7 : Required Answer the following multiple-choice questions related to insurance financial reporting: Click here for MCQs