# Operations Management

## Instructions

INSTRUCTIONS: Complete parts A and B of this exercise. Examples can be found in Chapter 21 of your textbook. Be sure to notice that Part A is a balance sheet and Part B is an income statement. Also, be sure to note that the most recent year is shown on the left in these financial statements. Formulas and examples for interpretation of results can be found in Table 21-1 of your textbook or the last worksheet tab of this file. |

## Part A – Balance sheet Analysis

Part A – Chapter 21 in your textbook contains examples that will be helpful for completing the exercises below. | ||

1. Using Excel formulas, prepare a vertical analysis for 2017 for the balance sheet below (only use 2017). | ||

2. Using Excel formulas, prepare a horizontal analysis for the balance sheet below (use 2016 & 2017 – also note the order of the columns below). | ||

3. Compute the following ratios and show the answer to two digits past the decimal: (i) the current ratio, (ii) the acid-test ratio. Use Excel formulas in the cells indicated below in yellow for calculating your ratios. Formulas for this exercise are located on page 779 in your textbook or on the Table 21-1 tab in this Excel file. | ||

Current ratio: | ||

Acid-test ratio: | ||

4. Using Table 21-1, how would you interpret the current ratio result you computed above? | ||

5. Using Table 21-1, how would you interpret the acid-test ratio result you computed above? | ||

Green’s Landscaping | ||

Balance Sheet | ||

December 31, 2016 and 2017 | ||

2017 | 2016 | |

Assets | ||

Current Assets | ||

Cash | $5,275 | $4,507 |

Accounts receivable | 7,305 | 5,118 |

Merchandise inventory | 45,522 | 48,722 |

Total current assets | 58,102 | 58,347 |

Plant and equipment | ||

Equipment | 20,173 | 25,942 |

Total assets | 78,275 | 84,289 |

Liabilities | ||

Current liabilities | ||

Accounts payable | 3,809 | 4,476 |

Wages payable | 2,432 | 1,973 |

Total current liabilities | 6,241 | 6,449 |

Long-term liabilities | ||

Mortgage note payable | 36,454 | 45,899 |

Total liabilities | 42,695 | 52,348 |

Owner’s Equity | ||

A. Green, capital | 35,580 | 31,941 |

Total liabilities and owner’s equity | 78,275 | 84,289 |

## Part B – Income Statement

Part B – Chapter 21 in your textbook contains examples that will be helpful for completing the exercises below. | ||

1. Using the information below, prepare a vertical analysis for the income statement for 2017. | ||

2. Using the information below, prepare a horizontal analysis of the income statement from 2017. | ||

3. In which areas, if any, has the company seen increases since 2016? | ||

4. In which areas, if any, has the company seen decreases since 2016? | ||

5. Compute the following ratio and show the answer to two digits past the decimal. Use an Excel formula in the cell indicated below in yellow for calculating your ratio. | ||

Operating ratio: | ||

6. Using table 21-1, how would you interpret this ratio? | ||

Artie’s Painting | ||

Income Statement | ||

For the Years Ending December 31, 2016 and 2017 | ||

2017 | 2016 | |

Net sales | $24,789 | $23,642 |

Cost of goods sold | 15,323 | 14,239 |

Gross profit | 9,466 | 9,403 |

Operating expenses | 3,873 | 3,702 |

Net income | 5,593 | 5,701 |

## Table 21-1 from Business Math

Cleaves, C., Hobbs, M., & Noble, J. (2017). Business Math (11th ed.). New York City, NY: Pearson Education, p.779. |