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2 FINANCIAL RATIOS - PROBLEMS

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FINANCIAL RATIOS
2.12 Financial Ratios. The
Format
Company reports the following balance sheet
data:
Current liabilities

$280,000

Bonds payable,16%
Preferred stock, 14%, $100 parvalue
Common stock $25 par value, 16,800

$120,000
$200,000
$420,000

Paid-in capital on common

stock
$240,000
Retained
earnings
$180,000
Income before taxes is $160,000. The tax rate is 40 percent. Common
stockholders
equity
in the previous year was $800,000. The market price per share of common
stock is $35.
Calculate
(
a
) net income; (
b
) preferred dividends; (
c
) return on common stock; (
d
) times interest
earned;
(
e
) earnings per share; (
f
) price/earnings ratio; and (
g
) book value per
share.
2.13 Dividends. Wilder
Corporations
common stock account for 20X3 and 20X2
showed:Common stock, $10 par value $45,000 The following data are
provided relative to 20X3 and 20X2: (

a
) Calculate the dividends per share, dividend yield, and dividend payout, and
(
b
) evaluate
the
results.
2.14 Financial Ratios. Jones
Corporations
financial statements appear below.
Jones Corporation Balance
Sheet
December 31,
20X1
ASSETS
Current assets Cash $100,000
Marketable
securities 200,000 Inventory
300,000 Total current assets $ 600,000 Plant assets 500,000 Total assets $1,1
00,000 20X3
20X2
Dividends
$2,250
$3,600
Market price per
share
$ 20
$ 22
Earnings per
share
$ 2.13
$ 2.67

LIABILITIES AND
STOCKHOLDERS
EQUITY
Liabilities Current liabilities $200,000 Long-term liabilities 100,000 Total liab
ilities $ 300,000
Stockholders
equity
Common stock, $1 par
value,
100,000
shares
$100,000
Premium on common
stock
500,000
Retained
earnings
200,000
Total
stockholders
equity
800,0
Total liabilities and
stockholders
equity
$1,100,0
Jones Corporation
Income
Statement

For the Year Ended December 31,

20X1
Net sales
$10,000,0
Cost of goods
sold
6,000,0
Gross
profit
$Operating expenses
1,000,0
Income before
taxes
$Income taxes (50%
rate)
1,500,0
Net
income
$
Additional
information
includes a market price of $150 per share of stock, total dividends
of
$600,000 for 20X1, and $250,000 of inventory as of December 31,
20X0. Compute the following ratios; (
a
) current ratio; (
b
) quick ratio; (
c
) inventory turnover; (
d
)average age of inventory; (
e

)
debt/equity
ratio; (
f
) book value per share; (
g
) earnings per
share;
(
h
) price/earnings ratio; (
i
) dividends per share; and (
j
) dividend
payout.
2.18 The Du Pont Formula and Return on Total Assets. Industry A has three
companies whose
income
statements and balance sheets are summarized below. First supply the
missing data in the table above. Then comment on the relative
performance
of each
company.
Sales
Company
X
$500,000
Company
Y
(
d
)
Company
Z
(
g
)
Net
income

$ 25,000
$30,000
(
h
)
Total assets
$100,000
(
e
)
$250,000
Total asset
turnover
(
a
)
(
f
)
0.4
Profit
margin
(
b
)
0.4%
5%
Return on total assets
(ROA)

(
c
)
2
%
(
i
)

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