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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