Ratios from Comparative and Common-Size Data Consider the following financial statements for Waverly Company. During 2013, management obtained additional bond financing to enlarge its production facilities. The company faced higher production costs during the year for such things as fuel, materials, and freight. Because of temporary government price controls, a planned price increase on products was delayed several months. As a holder of both common and preferred stock, you decide to analyze the financial statements: WAVERLY COMPANY Balance Sheets (Thousands of Dollars) Dec. 31, Dec. 31, 2013 2012 Assets Cash and cash equivalents Accounts receivable (net) Inventory Prepaid expenses Plant and other assets (net) Total Assets Liabilities and Stockholders' Equity Current liabilities 10% Bonds payable 9% Preferred stock, $50 Par Value Common stock, $10 Par Value Retained earnings $18,000 $12,000 55,000 43,000 120,000 105,000 20,000 14,000 471,000 411,000 $684,000 $585,000 $90,000 $82,000 225,000 160,000 75,000 75,000 200,000 200,000 94,000 68,000 Total Liabilities and Stockholders' Equity $684,000 $585,000 WAVERLY COMPANY Income Statements (Thousands of Dollars) 2013 2012 Sales revenue Cost of goods sold Gross profit on sales Selling and administrative expenses Income before interest expense and income taxes Interest expense Income before income taxes Income tax expense Net income Other financial data (thousands of dollars) Cash provided by operating activities Preferred stock dividends Required $820,000 $678,000 541,200 433,920 278,800 244,080 171,400 149,200 107,400 94,880 22,500 16,000 84,900 78,880 22,900 21,300 $62,000 $57,580 $65,200 $60,500 6,750 6,750 a. Calculate the following for each year: current ratio, quick ratio, operating-cash-flow-to-current liabilities ratio (current liabilities were $78,000,000 at January 1, 2012), inventory turnover (inventory was $87,000,000 at January 1, 2012), debt-to-equity ratio, times-interest-earned ratio, return on assets (total assets were $493,000,000 at January 1, 2012), and return on common stockholders' equity (common stockholders' equity was $236,000,000 at January 1, 2012). b. Calculate common-size percentages for each year's income statement. Round answers to two decimal places. 2013 2012 Current ratio: x 0 x Quick ratio: 0 x 0 % Operating-cash-flow-to-current-liabilities ratio: 0 x 0 x Inventory turnover: 0 * 0 x Debt-to-equity ratio: 0 x 0 x Times-interest-earned ratio: 0 x 0 x Return on assets: 0% * 0% * Return on common stockholders' equity: 0% * 0% * Round answers to one decimal place. Income Statements Year Ended 2013 Common- Size Year Ended 2012 Common- Size Sales revenue $820,000 Cost of goods sold 541,200 0% x 0% x $678,000 0% x 433,920 0% x Gross profit on sales 278,800 0% x 244,080 0% x Selling and administrative expenses 171,400 0% x 149,200 0% x Income before interest expense and income taxes 107,400 0% x 94,880 0% x Interest expense 22,500 0% x 16,000 0% * Income before income taxes 84,900 0% x 78,880 0% x Income tax expense 22,900 0% x 21,300 0% x Net income $62,000 0% x $57,580 0% x

Ratios from Comparative and Common-Size Data Consider the following financial statements for Waverly Company. During 2013, management obtained additional bond financing to enlarge its production facilities. The company faced higher production costs during the year for such things as fuel, materials, and freight. Because of temporary government price controls, a planned price increase on products was delayed several months. As a holder of both common and preferred stock, you decide to analyze the financial statements: WAVERLY COMPANY Balance Sheets (Thousands of Dollars) Dec. 31, Dec. 31, 2013 2012 Assets Cash and cash equivalents Accounts receivable (net) Inventory Prepaid expenses Plant and other assets (net) Total Assets Liabilities and Stockholders' Equity Current liabilities 10% Bonds payable 9% Preferred stock, $50 Par Value Common stock, $10 Par Value Retained earnings $18,000 $12,000 55,000 43,000 120,000 105,000 20,000 14,000 471,000 411,000 $684,000 $585,000 $90,000 $82,000 225,000 160,000 75,000 75,000 200,000 200,000 94,000 68,000 Total Liabilities and Stockholders' Equity $684,000 $585,000 WAVERLY COMPANY Income Statements (Thousands of Dollars) 2013 2012 Sales revenue Cost of goods sold Gross profit on sales Selling and administrative expenses Income before interest expense and income taxes Interest expense Income before income taxes Income tax expense Net income Other financial data (thousands of dollars) Cash provided by operating activities Preferred stock dividends Required $820,000 $678,000 541,200 433,920 278,800 244,080 171,400 149,200 107,400 94,880 22,500 16,000 84,900 78,880 22,900 21,300 $62,000 $57,580 $65,200 $60,500 6,750 6,750 a. Calculate the following for each year: current ratio, quick ratio, operating-cash-flow-to-current liabilities ratio (current liabilities were $78,000,000 at January 1, 2012), inventory turnover (inventory was $87,000,000 at January 1, 2012), debt-to-equity ratio, times-interest-earned ratio, return on assets (total assets were $493,000,000 at January 1, 2012), and return on common stockholders' equity (common stockholders' equity was $236,000,000 at January 1, 2012). b. Calculate common-size percentages for each year's income statement. Round answers to two decimal places. 2013 2012 Current ratio: x 0 x Quick ratio: 0 x 0 % Operating-cash-flow-to-current-liabilities ratio: 0 x 0 x Inventory turnover: 0 * 0 x Debt-to-equity ratio: 0 x 0 x Times-interest-earned ratio: 0 x 0 x Return on assets: 0% * 0% * Return on common stockholders' equity: 0% * 0% * Round answers to one decimal place. Income Statements Year Ended 2013 Common- Size Year Ended 2012 Common- Size Sales revenue $820,000 Cost of goods sold 541,200 0% x 0% x $678,000 0% x 433,920 0% x Gross profit on sales 278,800 0% x 244,080 0% x Selling and administrative expenses 171,400 0% x 149,200 0% x Income before interest expense and income taxes 107,400 0% x 94,880 0% x Interest expense 22,500 0% x 16,000 0% * Income before income taxes 84,900 0% x 78,880 0% x Income tax expense 22,900 0% x 21,300 0% x Net income $62,000 0% x $57,580 0% x

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter15: Financial Statement Analysis

Section: Chapter Questions

Problem 63P: Mike Sanders is considering the purchase of Kepler Company, a firm specializing in the manufacture...

See similar textbooks