Week Five Exercise Assignment
Financial Ratios
| Edison | Stagg | Thornton | |||
| Cash | $6,000 | $5,000 | $4,000 | ||
| Short-term investments | 3,000 | 2,500 | 2,000 | ||
| Accounts receivable | 2,000 | 2,500 | 3,000 | ||
| Inventory | 1,000 | 2,500 | 4,000 | ||
| Prepaid expenses | 800 | 800 | 800 | ||
| Accounts payable | 200 | 200 | 200 | ||
| Notes payable: short-term | 3,100 | 3,100 | 3,100 | ||
| Accrued payables | 300 | 300 | 300 | ||
| Long-term liabilities | 3,800 | 3,800 | 3,800 | ||
| ||||
| 20X5 | 20X4 | |||
| Net credit sales | $832,000 | $760,000 | ||
| Cost of goods sold | 530,000 | 400,000 | ||
| Cash, Dec. 31 | 125,000 | 110,000 | ||
| Average Accounts receivable | 205,000 | 156,000 | ||
| Average Inventory | 70,000 | 50,000 | ||
| Accounts payable, Dec. 31 | 115,000 | 108,000 | ||
| Instructions
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3. Profitability ratios, trading on the equity.Digital Relay has both preferred and common stock outstanding. The com pany reported the following information for 20X7:
| Net sales | $1,750,000 |
| Interest expense | 120,000 |
| Income tax expense | 80,000 |
| Preferred dividends | 25,000 |
| Net income | 130,000 |
| Average assets | 1,200,000 |
| Average common stockholders’ equity | 500,000 |
| |||
| 20X2 | 20X1 | ||
| Current Assets | $86,000 | $80,000 | |
| Property, Plant, and Equipment (net) | 99,000 | 90,000 | |
| Intangibles | 25,000 | 50,000 | |
| Current Liabilities | 40,800 | 48,000 | |
| Long-Term Liabilities | 153,000 | 160,000 | |
| Stockholders Equity | 16,200 | 12,000 | |
| Net Sales | 500,000 | 500,000 | |
| Cost of Goods Sold | 322,500 | 350,000 | |
| Operating Expenses | 93,500 | 85,000 | |
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5.Vertical analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow.
| 20X2 | 20X1 | ||
| Current Assets | $86,000 | $80,000 | |
| Property, Plant, and Equipment (net) | 99,000 | 80,000 | |
| Intangibles | 25,000 | 50,000 | |
| Current Liabilities | 40,800 | 48,000 | |
| Long-Term Liabilities | 153,000 | 150,000 | |
| Stockholders Equity | 16,200 | 12,000 | |
| Net Sales | 500,000 | 500,000 | |
| Cost of Goods Sold | 322,500 | 350,000 | |
| Operating Expenses | 93,500 | 85,000 | |
| 6. Ratio computation. The financial statements of the Lone Pine Company follow. | |||||
| LONE PINE COMPANY | |||||
| Comparative Balance Sheets | |||||
| December 31, 20X2 and 20X1 ($000 Omitted) | |||||
| 20X2 | 20X1 | ||||
| Assets | |||||
| Current Assets | |||||
| Cash and Short-Term Investments | $400 | $600 | |||
| Accounts Receivable (net) | 3,000 | 2,400 | |||
| Inventories | 3,000 | 2,300 | |||
| Total Current Assets | $6,400 | $5,300 | |||
| Property, Plant, and Equipment | |||||
| Land | $1,700 | $500 | |||
| Buildings and Equipment (net) | 1,500 | 1,000 | |||
| Total Property, Plant, and Equipment | $3,200 | $1,500 | |||
| Total Assets | $9,600 | $6,800 | |||
| Liabilities and Stockholders Equity | |||||
| Current Liabilities | |||||
| Accounts Payable | $2,800 | $1,700 | |||
| Notes Payable | 1,100 | 1,900 | |||
| Total Current Liabilities | $3,900 | $3,600 | |||
| Long-Term Liabilities | |||||
| Bonds Payable | 4,100 | 2,100 | |||
| Total Liabilities | $8,000 | $5,700 | |||
| Stockholders Equity | |||||
| Common Stock | $200 | $200 | |||
| Retained Earnings | 1,400 | 900 | |||
| Total Stockholders Equity | $1,600 | $1,100 | |||
| Total Liabilities and Stockholders Equity | $9,600 | $6,800 | |||
| LONE PINE COMPANY | |||||
| Statement of Income and Retained Earnings | |||||
| For the Year Ending December 31,20X2 ($000 Omitted) | |||||
| Net Sales* | $36,000 | ||||
| Less: Cost of Goods Sold | $20,000 | ||||
| Selling Expense | 6,000 | ||||
| Administrative Expense | 4,000 | ||||
| Interest Expense | 400 | ||||
| Income Tax Expense | 2,000 | 32,400 | |||
| Net Income | $3,600 | ||||
| Retained Earnings, Jan. 1 | 900 | ||||
| Ending Retained Earnings | $4,500 | ||||
| Cash Dividends Declared and Paid | 3,100 | ||||
| Retained Earnings, Dec. 31 | $1,400 | ||||
| *All sales are on account. | |||||
Instructions
Compute the following items for Lone Pine Company for 20X2, rounding all calcu lations to two decimal places when necessary:
a. Quick ratio
b. Current ratio
c. Inventory-turnover ratio
d. Accounts-receivable-turnover ratio
e. Return-on-assets ratio
f. Net-profit-margin ratio
g. Return-on-common-stockholders equity
h. Debt-to-total assets
i. Number of times that interest is earned
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