Question

The current year financial statements for Blue Water Company and Prime Fish Company are presented below. Blue Water Prime Fish Balance sheet: Cash $ 41,100 $ 20,900 Accounts receivable (net) 38,500 31,300 Inventory 98,500 40,600 Property & equipment (net) 141,500 402,200 Other assets 84,100 306,000 Total assets $ 403,700 $ 801,000 Current liabilities $ 98,500 $ 50,500 Long-term debt (interest rate: 15%) 65,700 60,200 Capital stock ($10 par value) 148,700 513,000 Additional paid-in capital 29,100 106,100 Retained earnings 61,700 71,200 Total liabilities and stockholders’ equity $ 403,700 $ 801,000 Income statement: Sales revenue (1/2 on credit) $ 445,500 $ 801,000 Cost of goods sold (240,500 ) (400,100 ) Operating expenses (161,200 ) (311,100 ) Net income $ 43,800 $ 89,800 Other data: Per share stock price at end of current year $ 22.1 $ 16 Average income tax rate 45 % 45 % Dividends declared and paid in current year $ 33,100 $ 148,500 Both companies are in the fish catching and manufacturing business. Both have been in business approximately 10 years, and each has had steady growth. The management of each has a different viewpoint in many respects. Blue Water is more conservative, and as its president has said, “We avoid what we consider to be undue risk.” Neither company is publicly held. Required: 1. Complete a schedule that reflects a ratio analysis of each company. (Round your intermediate calculations and final answers to 2 decimal places. Enter percentage answers rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).) Ratio BLUE WATER COMPANY PRIME FISH COMPANY Profitability ratios: 1. Return on equity 2. Return on assets 3. Financial leverage percentage 4. Net profit margin 5. Earnings per share Turnover ratios: 6. Total asset turnover 7. Fixed asset turnover 8. Receivable turnover 9. Inventory turnover Liquidity ratios: 10. Current ratio 11. Quick ratio 12. Cash ratio Solvency ratios: 13. Debt/equity ratio Market ratios: 14. Pricelearnings ratio 15. Dividend yield ratio

Answer 1

.1.Return on equity=Net Income/Stockholders equity

		Blue Water	Prime Fish
a	Net Income	$43,800	$89,800
b	Capital stock	$148,700	$513,000
c	Additional paid in capital	$29,100	$106,100
d	Retained earnings	$61,700	$71,200
e=b+c+d	Stockholders equity	$239,500	$690,300
f=a/e	Return on Equity	18.29%	13.01%

.2. Return on Assets= Net income/Total assets

		Blue Water	Prime Fish
a	Net Income	$43,800	$89,800
b	Total Assets	$403,700	$801,000
c=a/b	Return on assets	10.85%	11.21%

.3.Financial Leverage =Total Debt/Shareholders’ Equity

		Blue Water	Prime Fish
a	Current Liabilities	$98,500	$50,500
b	Long Term debt	$65,700	$60,200
c=a+b	Total   Debt	$164,200	$110,700
d	Capital stock	$148,700	$513,000
e	Additional paid in capital	$29,100	$106,100
f	Retained earnings	$61,700	$71,200
g=d+e+f	Stockholders equity	$239,500	$690,300
h=c/g	Financial Leverage Percentage	68.56%	16.04%

.4.Net Profit Margin= Net Income/Sales

		Blue Water	Prime Fish
a	Net Income	$43,800	$89,800
b	Sales	$445,500	$801,000
c=a/b	Net Profit Margin	9.83%	11.21%

.5 Earning Per Share =Net Income/Number of Shares Outstanding

		Blue Water	Prime Fish
a	Net Income	$43,800	$89,800
b	Capital Stock	$148,700	$513,000
c	Par Value	$10	$10
d=b/c	Number of shares outstanding	14870	51300
e=a/d	Earning per share	$2.95	$1.75