Question

1. The comparative statements of Pharoah Company are presented here.

PHAROAH COMPANY Income Statements For the Years Ended December 31
		2022		2021
Net sales		$1,890,800		$1,756,200
Cost of goods sold		1,060,095		1,011,700
Gross profit		830,705		744,500
Selling and administrative expenses		505,700		484,700
Income from operations		325,005		259,800
Other expenses and losses
Interest expense		23,100		21,100
Income before income taxes		301,905		238,700
Income tax expense		93,045		74,100
Net income		$ 208,860		$ 164,600

PHAROAH COMPANY Balance Sheets December 31
Assets		2022		2021
Current assets
Cash		$ 60,249		$ 64,200
Debt investments (short-term)		74,000		50,000
Accounts receivable		123,500		108,500
Inventory		127,100		116,600
Total current assets		384,849		339,300
Plant assets (net)		663,000		534,300
Total assets		$1,047,849		$873,600
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable		$ 165,700		$151,100
Income taxes payable		44,600		43,100
Total current liabilities		210,300		194,200
Bonds payable		234,000		214,000
Total liabilities		444,300		408,200
Stockholders’ equity
Common stock ($5 par)		290,000		300,000
Retained earnings		313,549		165,400
Total stockholders’ equity		603,549		465,400
Total liabilities and stockholders’ equity		$1,047,849		$873,600

All sales were on account. Net cash provided by operating activities for 2022 was $238,655. Capital expenditures were $136,000, and cash dividends were $60,711.

Compute the following ratios for 2022. (Round current ratio, earnings per share and asset turnover to 2 decimal places, e.g 1.83 and all other answers to 1 decimal place, e.g. 1.8 or 2.5%. Use 365 days in calculation.)

(a)		Earnings per share		$enter earnings per share in dollars rounded to 2 decimal places
(b)		Return on common stockholders’ equity		enter Return on common stockholders’ equity in percentages rounded to 1 decimal place	%
(c)		Return on assets		enter Return on assets in percentages rounded to 1 decimal place	%
(d)		Current ratio		enter Current ratio rounded to 2 decimal places	:1
(e)		Accounts receivable turnover		enter a number of Accounts receivable turnover in times rounded to 1 decimal place	times
(f)		Average collection period		enter a number of Average collection period in days rounded to 1 decimal place	days
(g)		Inventory turnover		enter a number of Inventory turnover in times rounded to 1 decimal place	times
(h)		Days in inventory		enter a number of days in inventory rounded to 1 decimal place	days
(i)		Times interest earned		enter a number of times interest earned rounded to 1 decimal place	times
(j)		Asset turnover		enter a number of Asset turnover in times rounded to 2 decimal places	times
(k)		Debt to assets ratio		enter Debt to assets ratio in percentages rounded to 1 decimal place	%
(l)		Free cash flow		$enter Free cash flow in dollars

Answer 1

(a)	Earnings per share	Earnings for equity shareholders	/	Weighted Average no. of shares	=
	Earnings per share	$ 208,860	/	59,000 shares	=	3.54
(b)	Return on common shareholder's equity	Net Income	/	Shareholder's equity(Average)	=
		$ 208,860	/	$ 534,475	=	39.08%
©	Return on assets	Net Income	/	Total Average Assets`	=
		$ 208,860	/	$ 960,725	=	21.74%
(d)	Current Ratio	Current Assets	/	Current Liabilities	=
		$ 384,849	/	$ 210,300	=	1.83
(e)	Accounts Receivable Turnover	Net Credit sales	/	Average Receivable	=
		$ 1,890,800	/	$116,000[(108,500+123,500)/2]	=	16.3
(f)	Average collection period	365 days	/	Accounts Receivable Turnover	=
		365 days	/	16.3	=	22.4 days
(g)	Inventory Turnover	COGS	/	Average inventory	=
		$ 1,060,095	/	$121,850[(116,600+127,100)/2]	=	8.7
(h)	Days in inventory	365 days	/	Inventory Turnover	=
		365 days	/	8.7	=	42 days
(i)	Times interest earned	Earnings before interest taxes	/	Interest expenses	=
		$ 325,005	/	$ 23,100	=	14.1
(j)	Asset Turnover	Net sales	/	Average total assets	=
		$ 1,890,800	/	$ 960,725	=	1.97
(k)	Debt to asset ratio	Total Debt or liabilities	/	Total assets	=
		$ 444,300	/	$ 1,047,849	=	0.4
(l)	Free cash flow =Net cash from operating activities-capital expenditure - Cash Dividends
	Free cash flow =$238,655 - $136,100 - $60,711 =$41,844