Note : The market price of BabyCakes Int’l, Inc. common stock was $20 on Decembe

Question

Note: The market price of BabyCakes Int’l, Inc. common stock was $20 on December 31, 2008.

Part A:Complete the calculations for the 19 items listed below.

Determine the following measures for the year 2008:

Working Capital

Current ratio

Quick ratio

Accounts receivable turnover

Number of days’ sales in receivables

Inventory turnover

Number of days’ sales in inventory

Ratio of fixed assets to long-term liabilities

Ratio of liabilities to stockholders’ equity

Number of times interest charges earned

Number of times preferred dividends earned

Ratio of net sales to assets

Rate earned on total assets

Rate earned on stockholders’ equity

Rate earned on common stockholder’s equity

Earnings per share on common stock

Price-earnings ratio

Dividends per share of common stock

Dividend yield

Part B:Explain what the result of each measure indicates about the company.

Part C:Complete a horizontal analysis for the Income Statement, and explain your findings.

Part D:Complete a vertical analysis for the Income Statement, and explain your findings.

Retained Earnings December 31

$421,000

$375,000

Baby Cakes International Inc Statement of Retained Earnings for the Years ended December 31, 2008 and 2007 December 31, 2008 December 31, 2007 Retained Earnings, January 1 $375,000 $327,000 Net income for year 68,000 67,000 Total $443,000 $394,000 Dividends Paid          Preferred Stock $15,000 $12,000          Common Stock 7,000 7,000                     Total Dividends Paid $22,000 $19,000

Retained Earnings December 31

$421,000

$375,000

Explanation / Answer

Since this question has so many subparts I am going to answer first three

Working capital = Current Assets - Current Liabilities
= 871000 - 290000 (other liabilities are liabilities after one year)
= 581000

Current Ratio = Current Liabilities / Current Assets
= 290000/871000 = 0.33

Quick Ratio = Current Assets - Inventory - Prepaids / Current Liabilities
= (871000 - 84000 - 25000) / 290000 = 762000 / 290000 = 2.63

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