Hyrkas Corporation\'s most recent balance sheet and income statement appear belo
ID: 2580838 • Letter: H
Question
Hyrkas Corporation's most recent balance sheet and income statement appear below: Balance Sheet December 31, Year 2 and Year 1 (in thousands of dollars) Year 2 Year 1 Assets Current assets: Cash $ 185 $ 260 Accounts receivable, net 290 310 Inventory 260 230 Prepaid expenses 20 20 Total current assets 755 820 Plant and equipment, net 970 1,020 Total assets $ 1,725 $ 1,840 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 230 $ 260 Accrued liabilities 50 50 Notes payable, short term 40 40 Total current liabilities 320 350 Bonds payable 220 330 Total liabilities 540 680 Stockholders’ equity: Common stock, $2 par value 200 200 Additional paid-in capital 330 330 Retained earnings 655 630 Total stockholders’ equity 1,185 1,160 Total liabilities & stockholders’ equity $ 1,725 $ 1,840 Income Statement For the Year Ended December 31, Year 2 (in thousands of dollars) Sales (all on account) $ 1,330 Cost of goods sold 830 Gross margin 500 Selling and administrative expense 405 Net operating income 95 Interest expense 20 Net income before taxes 75 Income taxes (30%) 23 Net income $ 52 Dividends on common stock during Year 2 totaled $27 thousand. The market price of common stock at the end of Year 2 was $16.30 per share. Required: Compute the following for Year 2: a. Gross margin percentage. (Round your answer to 1 decimal place.) b. Earnings per share. (Round your answer to 2 decimal places.) c. Price-earnings ratio. (Do not round intermediate calculations. Round your answer to 1 decimal place.) d. Dividend payout ratio. (Do not round intermediate calculations. Round your "Percentage" answer to 1 decimal place.) e. Dividend yield ratio. (Round your "Percentage" answer to 2 decimal places.) f. Return on total assets. (Do not round intermediate calculations. Round your "Percentage" answer to 2 decimal places.) g. Return on equity. (Round your "Percentage" answer to 2 decimal places.) h. Book value per share. (Round your answer to 2 decimal places.) i. Working capital. (Input your answer in thousands of dollars.) j. Current ratio. (Round your answer to 2 decimal places.) k. Acid-test (quick) ratio. (Round your answer to 2 decimal places.) l. Accounts receivable turnover. (Round your answer to 2 decimal places.) m. Average collection period. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 1 decimal place.) n. Inventory turnover. (Round your answer to 2 decimal places.) o. Average sale period. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 1 decimal place.) p. Times interest earned ratio. (Round your answer to 2 decimal places.) q. Debt-to-equity ratio. (Round your answer to 2 decimal places.)
Explanation / Answer
Solution (a)
Gross Margin percentage= Gross Margin / Sales X 100
= $ 5, 00/ $ 1,330 * 100
= 37.6 % (Answer)
Solution (b)
Earnings per share = (Net Income - Dividends on Preferred Stock*) / Amount of outstanding Shares**
= ($ 52- $ 0) / $ 200
= $ 52 / $ 200
= $ 0.26 (Answer)
*As there is no preferred stock in the question, dividends on preferred stock will be zero.
** Amount of outstanding shares means value of common stock given in balance sheet which is $ 200. There is no increase or decrease in common stock values from year 1 to year 2, so the value of common stock. $ 200 is taken for calculation.
Solution (c)
Price earnings ratio= Market Value per Share / Earnings per Share
= $ 16.30 / $ 0.26
= 62.7 (Answer)
Solution (d)
Dividend payout ratio= Dividends paid / Net income
= $ 27 / $ 52
= 0.5 (Answer)
Solution (e)
Dividend yield ratio= Annual Dividend per share* / Current stock price per share X 100
= $ 0.27 / $ 16.30 X 100
= 1.66 % (Answer)
*Annual dividend per share = Total dividend / Number of common shares **
= $ 27,000 / 1, 00,000
= 0.27
** Number of common shares= Amount of common stock / Value per common share
= $ 200,000 / $ 2
= 1, 00,000
Solution (f)
Return on Total Assets = Earnings before interest and taxes* / Total net assets X 100
= $ 95 / $ 1,725 X 100
= 5.51 % (Answer)
*Earnings before interest and taxes = Net Income + Interest expense + Taxes
= $ 52 + $ 20 + $ 23
= $ 95
Solution (g)
Return on equity = Net Income / Stockholders’ equity X 100
= $ 52 / $ 1,185 X 100
= 4.39 % (Answer)
Solution (h)
Book value per share = Total common stockholders’ equity / Number of common shares*
= $ 1,185 / 1, 00,000
= 0.01 (Answer)
*Number of common shares already calculated in solution e.
Solution (i)
Working capital = Total current assets – Total current liabilities
= $ 7, 55,000 – $ 3, 20,000
= $ 4, 35,000 (Answer)
Note: Here the amounts are taken in thousands as answer is to be calculated in thousand.
Solution (j)
Current Ratio = Total current assets / Total current liabilities
= $ 755/ $ 320
= 2.36 (Answer)
Solution (k)
Acid test (quick) ratio = (Total current assets- Prepaid expenses- inventory ) / Total current liabilities
= ($ 755 - $20 - $ 260) / $ 320
= $ 475 / $ 320
= 1.48 (Answer)
Solution (l)
Accounts receivable turnover= Net credit sales / Average accounts receivable*
= $ 1,330 / $ 300
= 4.43 (Answer)
*Average accounts receivable= (Account receivable Year 1 + Account receivable Year 2) / 2
= ($ 310 + $ 290)/ 2
= $ 600 /2
= $ 300
Solution (m)
Average collection period= Days in year / Accounts receivable turnover
= 365 / 4.43
= 82.4 (Answer)
Solution (n)
Inventory turnover = Cost of goods sold / Average inventory *
= $ 830 / $ 245
= 3.39 (Answer)
*Average inventory = (Inventory Year 1 + Inventory Year 2) / 2
= ( $ 230 + $ 260 ) /2
= $ 490/2
= $ 245
Solution (o)
Average sale period = Days in year / Inventory turnover
= 365 / 3.39
= 107.7 (Answer)
Solution (p)
Times interest eraned ratio = Earnings before interest and taxes / Interest Expenses
= $ 95 / $ 20
= 4.75 (Answer )
Answer (q) Debt equity ratio = Total Liabilities / Stockholders' euqity
= $ 1725 / $ 1185
= 1. 46 (Answer )
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.