Question

The financial statements of Hainz Company appear below:

HAINZ COMPANY

Comparative Balance Sheet

December 31

Assets      2015                    2014   

Cash.............................................................     $  20,000             $ 40,000

Short-term investments............................         20,000                 60,000

Accounts receivable (net)..........................         40,000                 30,000

Inventory.....................................................         60,000                 70,000

Property, plant and equipment (net).......       260,000               300,000

      Total assets ..........................................     $400,000             $500,000

Liabilities and stockholders' equity

Accounts payable......................................     $  20,000             $ 30,000

Short-term notes payable........................         40,000                 90,000

Bonds payable...........................................         80,000               160,000

Common stock..........................................       150,000               150,000

Retained earnings.....................................       110,000                 70,000

Total liabilities and stockholders' equity.  $400,000             $500,000

                                                                 HAINZ COMPANY

Income Statement

For the Year Ended December 31, 2015

Net sales................................................................................    $400,000

Cost of goods sold.................................................................      250,000

Gross profit............................................................................    150,000

Expenses

      Operating expenses....................................  $42,000

      Interest expense.........................................    18,000

            Total expenses................................................       60,000

Income before income taxes....................................    90,000

Income tax expense...................................................         27,000

Net income..................................................................    $ 63,000

Additional information:

a.    Cash dividends of $23,000 were declared and paid in 2015.

b.    Weighted-average number of shares of common stock outstanding during 2015 was 30,000 shares.

c.     Market value of common stock on December 31, 2015, was $21 per share.

Instructions

Using the financial statements and additional information, compute the ratios listed on the following page, for Hainz Company for 2015.

a) Current ratio

b) Return on common stockholders' equity

c) Earnings per share

d) Price-earning ratio

e) Acid-test ratio

f) Accounts receivable turnover

g) Times interest earned

h) Profit margin

i) Payout ration

j) Return on assets

Answer 1

ANSWER

1	Current ratio	Current assets/current liabilities	($20000+20000+40000+60000)/(20000-1-40000)	2.3
2	Return on common stockholders equity	Net income/Average Common stock equity	$63000/[(150000+110000+150000+70000)/2]	26.3%
3	Price earnings ration	Market price/EPS	$21/(63000/30000)	10 times
4	Acid test ration	Current assets-inventory/current liabilities	(20000+20000+40000)/(20000+40000)	1.3
5	Accounts receivable turnover times	Credit sales/Average accounts receivable	S4000004(40000+30000)2]	11.4
6	Times interest earned	EBIT/Interest expense	($150000-42000)/18000	0.6
7	Profit margin	Net income/Sales	$63,000/400,000	15.8%
8	Days in inventory days	365 days Average inventory/Cost of goods sold	365 days*K60000+70000)/2]/250000	94.9 days
9	Payout ratio	Dividend Net income	$23000/$63000	36.5%
10	Return on total assets	Net income/Average Total assets	$63,0004(400000+500000)/2]	14.0%