the Profit Margin, Asset Turnover, Earnings Per share, price-earnings ratio, pay
ID: 2422390 • Letter: T
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the Profit Margin, Asset Turnover, Earnings Per share, price-earnings ratio, payout ratio, and debt to assets ratio for 2017 and 2018
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.Explanation / Answer
Answer 1 - Ratio analysis and evaluation of Financial position and operating results Answer 2 - Additional question Particulars 2018 2017 Particulars 2018 2017 Profit margin ratio Profit margin ratio Net Income 45000 30000 Net Income 45000 38000 Net Sales revenue 700000 650000 Net Sales revenue 680000 650000 Profit margin ratio = Net Income / Sales revenue 6.43% 4.62% Profit margin ratio = Net Income / Sales revenue 6.62% 5.85% Asset Turnoer ratio Asset Turnoer ratio Net Sales revenue 700000 650000 Net Sales revenue 680000 650000 Average Total assets (Refer Note 1) 620000 566500 Average Total assets (Refer Note 1) 620000 566500 Asset Turnoer ratio = Net sales / Average total assets 1.13 1.15 Asset Turnoer ratio = Net sales / Average total assets 1.10 1.15 Earning per share ratio Earning per share ratio Net Income - Pref dividend 45000 30000 Net Income - Pref dividend 45000 38000 Weighted average common shares outstanding 34,000 31,000 Weighted average common shares outstanding 34,000 31,500 Earning per share ratio 1.32 0.97 Earning per share ratio 1.32 1.21 Price-earnings ratio Price-earnings ratio Market price per share 8 5 Market price per share 8 5 Earning per share 1.32 0.97 Earning per share 1.32 1.21 Price-earnings ratio 6.04 5.17 Price-earnings ratio 6.04 4.14 Payout ratio Payout ratio Cash dividends declared on common Cash dividends declared on common Net Incme 45000 30000 Net Incme 45000 30000 Debt to asset ratio Debt to asset ratio Total Outside liabilities 1,55,000.00 1,65,000.00 Total Outside liabilities 1,60,000.00 1,65,000.00 Total assets 6,40,000.00 6,00,000.00 Total assets 6,40,000.00 6,00,000.00 Debt to asset ratio 0.24 0.28 Debt to asset ratio 0.25 0.28 Note 1 Calculation of Average total assets for 2018 = (Total assets for 2018 + Total assets for 2017) / 2 The impact of changes in marked in yellow. Average total assets for 2018 = (640000 + 600000) / 2 = 620000 Calculation of Average total assets for 2017 = (Total assets for 2017 + Total assets for 2016) / 2 Average total assets for 2017 = (600000 + 533000) / 2 = 566500 Evalution the profit margin of th company has improved in 2018 The company's dependance on outside debt reduced silghtly in 2018 The company's PE and EPS ratio has been improved in 2018 Overall the operating and financial condition of the company has been improved in 2018
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