E15-18 p15-26a financial statement analysis

E15-18 P15-26A Financial Statement Analysis

 

Financial Statement Analysis

From Chapter 15, complete E15-18 and P15-26A and post the answers to the discussion board by day 3. Respond to at least two of your classmates’ postings.

 

E15-18

Large Land Photo Shop has asked you to determine whether the company’s ability to pay current liabilities and total liabilities improved or deteriorated during 2012. To answer this question, you gather the following data:

 

2012

2011

Cash

$58,000

$57,000

Short-term investments

31,000

 

Net receivables

110,000

132,000

Inventory

247,000

297,000

Total assets

585,000

535,000

Total current liabilities

255,000

222,000

Long-term note payable

46,000

48,000

Income from operations

180,000

153,000

Interest expense

52,000

39,000

1.   Compute the following ratios for 2012 and 2011:

a.   Current ratio

b.   Acid-test ratio

c.   Debt to equity ratio

 

P15-26A Using ratios to evaluate a stock investment

Comparative financial statement data of Danfield, Inc., follow:

Danfield, Inc.

Comparative Income Statement

Years Ended December 31, 2012 and 2011

 

2012

2011

 

Net sales

$467,000

$428,000

 

Cost of goods sold

237,000

218,000

 

Gross profit

$230,000

$210,000

 

Operating expenses

136,000

134,000

 

Income from operations

$94,000

$76,000

 

Interest expense

9,000

10,000

 

Income before income tax

$85,000

$66,000

 

Income tax expense

24,000

27,000

 

Net income

$61,000

$39,000

 

 

 

Danfield, Inc.

Comparative Income Statement

Years Ended December 31, 2012 and 2011

 

2012

2011

2010*

Current assets:

 

 

 

Cash

$97,000

$95,000

 

Current receivables, net

112,000

118,000

$102,000

Inventories

145,000

163,000

203,000

Prepaid expenses

12,000

5,000

 

Total current assets

$366,000

$381,000

 

Property, plant, and equipment, net

211,000

179,000

 

Total assets

577,000

$560,000

598,000

Total current liabilities

$225,000

$246,000

 

Long-term liabilities

114,000

97,000

 

Total liabilities

$339,000

$343,000

 

Preferred stock, 3%

108,000

108,000

 

Common stockholders’ equity, no par

130,000

109,000

 

Total liabilities and stockholders’ equity

$577,000

$560,000

 

* Selected 2010 amounts

 

1. Market price of Danfield’s common stock: $86.58 at December 31, 2012 and $46.54 at December 31, 2011.

2. Common shares outstanding: 12,000 during 2012 and 10,000 during 2011 and 2010.

3. All sales on credit.

 

Requirements

1.   Compute the following ratios for 2012 and 2011:

a.   Current ratio

b.   Times-interest-earned ratio

c.   Inventory turnover

d.   Gross profit percentage

e.   Debt to equity ratio

f.    Rate of return on common stockholders’ equity

g.   Earnings per share of common stock

h.   Price/earnings ratio

 

 

2.   Decide (a) whether Danfield’s ability to pay debts and sell inventory improved or deteriorated during 2012 and (b) whether the investment attractiveness of its common stock appears to have increased or decreased.

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