[...]... liabilities Long-term liabilities Total liabilities 80.0 75 70 - - $135.4 $125 $122 - - - STOCKHOLDERS’ EQUITY Common stock, $10 par value, 4,500 shares Retained earnings Total stockholders’ equity Total liabilities and stockholders’ equity EXAMPLE 2.2 19x2 $ 30.0 ASSETS Current assets Cash Accounts receivable Marketable securities Inventory Total current assets Plant assets Total assets $ 45.0 39.6 $ 84.6... ratios for evaluating inventory are inventory turnover and average age of inventory Inventory turnover is computed as: Inventory turnover = cost of goods sold average inventory Average inventory is determined by adding the beginning and ending inventories and dividing by 2 For the Ratio Company, the inventory turnover in 19x3 is: $50,000 1.05 times $47,500 In 19x2, the inventory turnover was 1.26 times... (Expressed as Percent) Dec 31, 19X3,19X2, and 19x1 19x3 ASSETS Current assets Plant assets Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities Current liabilities Long-term liabilities Total liabilities Stockholders’ equity Common stock Retained earnings Total stockholders’ equity Total liabilities and stockholders’ equity 2.4 19x2 19x1 120 117.6 118.9 110 105.9 108.1 100 100 100 106.5 114.3... past financial performance and its prospects for the future Typically, it involves an analysis of the firm’s financial statements and its flow of funds Financial statement analysis involves the calculation of various ratios It is used by such interested parties as creditors, investors, and managers to determine the firm’s financial position relative to that of others The way in which an entity’s financial. .. from equity sources Management might also consider lengthening the maturity of the debt and staggering the debt repayment dates Some leverage ratios follow Debt Ratio The debt ratio compares total liabilities (total debt) to total assets It shows the percentage of total funds obtained from creditors Creditors would rather see a low debt ratio because there is a greater cushion for creditor losses if the... of stock 4 Ability to raise large sums of capital Its disadvantages are: 1 Difficult and costly to establish, as a formal charter is required 2 Subject to double taxation on its earnings and dividends paid to stockholders 3 Bankruptcy, even at the corporate level, does not discharge tax obligations Subchapter S Corporation This is a form of corporation whose stockholders are taxed as partners To qualify... which translates into maximizing the stockh old er common stock is a short-term goal It can be achieved at the expense of the firm and its 2 stockholders 3 A firm’s stock price depends on such factors as present and future earnings per share, the timing, of these earnings, and duration, and on its earnings and the 4 A major disadvantage of the corporation is the paid to its owners (stockholders) is the... on a financial statement is used as a base value, and all other items on the financial statement are compared to it In performing vertical analysis for the balance sheet, total assets is assigned 100 percent Each asset account is expressed as a percentage of total assets Total liabilities and stockholders’ equity is also assigned 100 percent Each liability and equity account is then CHAP 21 21 FINANCIAL. .. according to the length of time they are outstanding, would be helpful for this comparison Inventory Ratios If a company is holding excess inventory, it means that funds which could be invested elsewhere are being tied up in inventory In addition, there will be high carrying cost for storing the goods, as well as the risk of obsolescence On the other hand, if inventory is too low, the company may lose customers... maximization and stockholder wealth maximization as the goals of the firm? SOLUTION The disadvantages are Profit Maximhation Emphasizes the short run Ignores risk Ignores the timing of returns Ignores the stockholders’ return 12 Stockholder Wealth Maximization Offers no clear link between financial decisions and stock price Can lead to management anxiety and frustration The Role of Financial Managers . by possession of shares of stock. In terms of types of businesses, the corporate form is not the greatest in number, but the most important in terms of total sales, assets, profits, and. class="bi x0 y0 w0 h1" alt="" SCHAUM& apos ;S OUTLINE SERIES Schaum& apos ;s Outline of Theory and Problems of Financial Management Second Edition Jae K. Shim, Ph.D. Professor of Business Administration. Mutual Savings Banks 0Savings and Loan Associations 0 Pension Funds Life Insurance Cos. Businesses Credit Unions 0 Investment Banking Houses (or Brokerage Houses) Governments 0