Financial Statement Analysis Use the following information from the current year
ID: 2507976 • Letter: F
Question
Financial Statement Analysis
Use the following information from the current year financial statements of a company to calculate the ratios below:
Income statement data:
Sales (all on credit) $1,075,000
Cost of Goods Sold 575,000
Gross Profit on Sales $ 500,000
Operating Expenses 305,000
Operating Income $ 195,000
Interest Expense 20,400
Income Before Taxes $ 174,600
Income Taxes 74,000
Net Income $ 100,600
Balance sheet data:
Cash $ 38,400
Accounts receivable 120,000
Inventory 56,700
Prepaid Expenses 24,000
Total current assets $ 239,100
Total plant assets 708,900
Total assets $ 948,000
Accounts payable $ 91,200
Interest payable 4,800
Long-term liabilities 204,000
Total liabilities $ 300,000
Common stock, $10 par 480,000
Retained earnings 168,000
Total liabilities and equity $ 948,000
(a) Current ratio.
(b) Accounts receivable turnover. (Assume the prior year's accounts receivable balance was $100,000.)
(c) Days' sales uncollected.
(d) Inventory turnover. (Assume the prior year's inventory was $50,200.)
(e) Times interest earned ratio.
(f) Return on common stockholders' equity. (Assume the prior year's common stock balance was $480,000 and the retained earnings balance was $128,000.)
(g) Earnings per share (assuming the corporation has a simple capital structure, with only common stock outstanding).
(h) Price earnings ratio. (Assume the company's stock is selling for $26 per share.)
(i) Divided yield ratio. (Assume that the company paid $1.25 per share in cash dividends.)
Explanation / Answer
Total current assets= $ 239,100
Total current liabilities=Accounts payable+Interest payable= $ 91,200+ 4,800
=$96000
a) current ratio=Total current assets/Total current liabilities
=239100/96000
=2.49 times
b)Accounts receivable turnover=Credit sales/Average Receivable
=10750000/[(100000+120000)/2]
=9.77 times
(c) Days' sales uncollected=(Average accounts receivable/Credit sales)*365
=(110000/1075000)*365
=37.35 days
It can alternatively be calculated based on closing receivable then answer would be=40.74 days
d)Inventory turnover=COGS/Average inventory
=575000/[(50200+56700)/2]
=10.76 times
e)Times interest earned ratio=EBIT/Interest payable on long term funds and debt
=195000/20400
=9.56 times
f)Return on common stockholders' equity=Net income/Average Shareholders equity*100
=100600/[(480000+128000+480000+168000)/2]
=16.02%
(g) Earnings per share(EPS)=Net Income/Number of shares
=100,600/48000
=$2.0958 per share
(h) Price earnings ratio=Price/EPS
=26/2.0958
=12.406 times
(i) Divided yield ratio=Dividend per share/EPS
=1.25/2.0958
=59.64%
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