R Company has the following selected financial statement information: R Company
ID: 2573948 • Letter: R
Question
R Company has the following selected financial statement information: R Company 12/31/2017 & 12/31/2016 Balance sheet 12/31/17 12/31/16 30,000 90,000 270,000 230,000 600,000 600,000 Cash 20,000 110,000 Receivable Inventory Land 100,000 $150,000 200,000 100,000 Current Liabilities Long-term Liabilities 500,000 500,000 Common Stock Retained Earnings 200,000 200,000 R Company 2017 Income Statement Net Sales (all credit) Cost of Goods Sold Gross Profit Operating Expenses Operating Income Interest Expense Income before taxes Income tax expense Net Income $800,000 500,000 300,000 270,000 30,000 5,000 25,000 10,000 15,000 R Company 2017 Cash Flow Statement Net Cash flow-Operating Activities Cash paid for Capital expenditures Cash paid for dividends Cash paid on bank loan $100,000 35,000 15,000 60,000 Compute R Company's 2017 free cash flowExplanation / Answer
1. Free Cash flow for R Company in 2017
Free Cash Flow = Net Cash Flow from Operations - Cash paid for capital expenditures
FCF = $100,000 - $35,000
= $65,000
2. Compute R Company's 2017 Earnings Per Share (EPS)
EPS = (Net Income - Preferred Dividend) / No. of shares outstanding
= ($15,000 - $5,000) / 25000
=$0.40 per shares
3. Compute R Company's 2017 Price Earning Ratio (P/E Ratio)
P/E Ratio = Market Price per share - Common / EPS
= $7.50 / $0.40*
= 18.75
* EPS taken from the previous question
4. Compute R Company's 2017 Gross Profit Rate
Gross Profit ratio = (Gross Profit / Net Sales) x 100
GP Ratio = ($300,000 / $800,000) x 100
=37.5%
5. Compute R Company's 2017 Profit Margin
Gross Profit ratio = (Net Profit / Net Sales) x 100
=($16,000 / $800,000) x 100
=2%
6. Compute R Company's 2017 Return on Assets
Return on Assets = Net Income / Average Total Assets
ROA = $15,000 / [($1,000,000 + $900,000)/2]
=15000/950000 = 1.58%
7. Compute R Company's 2017 Payout Ratio
Payout Ratio = Dividend to common stockholders / Net Income
= $10,000 / $15,000
= 66.67% (or 2/3rd of total net profits)
8. Compute R Company's Return on Common Stockholder's Equity
Return on Common Stockholder's equity = (Net Income - Preferred Dividend) / (Avg. Common Stockholder's Equity)
= ($15,000 - $5,000) / [($500,000 + $400,000)/2]
= $10,000 / $450,000
=2.2%
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