P14-3 Perform ratio analysis and evaluate financial position and operating resul
ID: 2422385 • Letter: P
Question
P14-3 Perform ratio analysis and evaluate financial position and operating results Condensed balance sheet and income statement data for Landwehr Corporation appear below and on page 644. LANDWEHR CORPORATION Balance Sheets December 31 2018 2017 2016 Cash 25,000 20,000 18,000 Accounts receivable (net) 50,000 45,000 48,000 Other current assets 90,000 95,000 64,000 Investments 75,000 70,000 45,000 Plant and equipment (net) 400,000 370,000 358,000 640,000 600,000 533,000 Current liabilities 75,000 80,000 70,000 Long-term debt 80,000 85,000 50,000 Common stock, $10 par 340,000 310,000 300,000 Retained earnings 145,000 125,000 113,000 640,000 600,000 533,000 LANDWEHR CORPORATION Income Statement For the Years Ended December 31 2018 2017 Sales revenue $740,000 $700,000 Less: Sales returns and allowances 40,000 50,000 Net sales 700,000 650,000 Cost of goods sold 420,000 400,000 Gross profit 280,000 250,000 Operating expenses (including income taxes) 235,000 220,000 Net income $45,000 $30,000 Additional information: 1. The market price of Landwehr's common stock was $4.00, $5.00, and $8.00 for 2016, 2017 and 2018, respectively. 2. All dividends are paid in cash. Instructions (a) Compute the following ratios for 2017 and 2018. (1) Profit margin. (2) Asset turnover. (3) Earnings per share (Weighted-average common shares in 2018 were 32,000 and in 2017 were 31,000.) (4) Price-earnings ratio. (5) Payout ratio. (6) Debt to assets ratio. (b) Based on the ratios calculated, discuss briefly the improvement or lack thereof in financial position and operating results from 2017 to 2018 of Landwehr Corporation. NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" . 2017 2018 (a) Profit margin: Profit margin: Net income Value Net income Value Net sales Value Net sales Value Asset turnover: Asset turnover: Net sales Value Net sales Value Average total assets Value Average total assets Value Earnings per share: Earnings per share: Net income - Pfd. Dividends Value Net income - Pfd. Dividends Value Weighted average common shares outstanding Value Weighted average common shares outstanding Value Price-earnings ratio: Price-earnings ratio: Market price per share Value Market price per share Value Earnings per share Value Earnings per share Value Payout ratio: Payout ratio: Cash dividends declared on common Value Cash dividends declared on common Value Net income Value Net income Value Debt to assets ratio: Debt to assets ratio: Total liabilities Value Total liabilities Value Total assets Value Total assets Value (b) Based on the ratios calculated, discuss briefly the improvement or lack thereof in financial position and operating results from 2017 to 2018 of Landwehr Corporation. P14-3 Perform ratio analysis and evaluate financial position and operating results Condensed balance sheet and income statement data for Landwehr Corporation appear below and on page 644. LANDWEHR CORPORATION Balance Sheets December 31 2018 2017 2016 Cash 25,000 20,000 18,000 Accounts receivable (net) 50,000 45,000 48,000 Other current assets 90,000 95,000 64,000 Investments 75,000 70,000 45,000 Plant and equipment (net) 400,000 370,000 358,000 640,000 600,000 533,000 Current liabilities 75,000 80,000 70,000 Long-term debt 80,000 85,000 50,000 Common stock, $10 par 340,000 310,000 300,000 Retained earnings 145,000 125,000 113,000 640,000 600,000 533,000 LANDWEHR CORPORATION Income Statement For the Years Ended December 31 2018 2017 Sales revenue $740,000 $700,000 Less: Sales returns and allowances 40,000 50,000 Net sales 700,000 650,000 Cost of goods sold 420,000 400,000 Gross profit 280,000 250,000 Operating expenses (including income taxes) 235,000 220,000 Net income $45,000 $30,000 Additional information: 1. The market price of Landwehr's common stock was $4.00, $5.00, and $8.00 for 2016, 2017 and 2018, respectively. 2. All dividends are paid in cash. Instructions (a) Compute the following ratios for 2017 and 2018. (1) Profit margin. (2) Asset turnover. (3) Earnings per share (Weighted-average common shares in 2018 were 32,000 and in 2017 were 31,000.) (4) Price-earnings ratio. (5) Payout ratio. (6) Debt to assets ratio. (b) Based on the ratios calculated, discuss briefly the improvement or lack thereof in financial position and operating results from 2017 to 2018 of Landwehr Corporation. NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .Explanation / Answer
Answer a. 2018 2017 Profit Margin A. Net Income $45,000 $30,000 B. Net Sales $700,000 $650,000 Profit Margin ratio (A/B) 6.43% 4.62% Assets Turnover B. Net Sales $700,000 $650,000 C. Average Total Assets 620000 566500 Assets Turnover Ratio (B/C) 1.13 times 1.15 Times Earning Per Share A. Net Income 45000 30000 D. Weighted-average common shares 32000 31000 Earning Per Share (A/D) 1.41 0.97 Price Earning Ratio E . Market Price Per Share $8 $5 F. Earnings Per Share 1.41 0.97 Price Earning Ratio (E/F) 5.69 5.17 Pay out Ratio G. Cash dividends declared on Common 25,000 18,000 A. Net Income 45,000 30,000 Pay out Ratio (G/A) 55.56% 60% Debt to Assets Ratio Total liabilties 80000 85000 Total Assets 640000 600000 Debt to Assets Ratio 1 : 8 1 : 7.06 Assets Turnover Ratio = Net Sales / average Total Assets Average Total Assets = ( Op. Balance Assets + Cls Balance Assets)/2 Average Total Assets - 2018 = (640000+600000)/2 = $620000 Average Total Assets - 2017 = (533000+600000)/2 = $566500 Earning Per Share = (Net Income - Preferred Div.)/ Average O/s Common Shares Earning per Share - 2018 = $45000 Earning per Share - 2017 = $30000 Profit Margin ratio = Net Profit / Net sales Assets Turnover Ratio = Net Sales / average Total Assets Calculation of dividend paid 2018 2017 OP. Balance of retained Earnings 125,000 113,000 Add:Net Income 45,000 30,000 Less: Cls Balnce of retained earnings (145,000) (125,000) Dividend paid 25,000 18,000
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