Question

The following financial statements apply to Karl Company:

	2019				2018
Revenues
Net sales	$	420,000			$	350,000
Other revenues		16,000				10,000
Total revenues		436,000				360,000
Expenses
Cost of goods sold		252,000				206,000
Selling expenses		42,000				38,000
General and administrative expenses		22,000				20,000
Interest expense		6,000				6,000
Income tax expense		42,000				36,000
Total expenses		364,000				306,000
Net income	$	72,000			$	54,000
Assets
Current assets
Cash	$	8,000			$	16,000
Marketable securities		2,000				2,000
Accounts receivable		70,000				64,000
Inventories		200,000				192,000
Prepaid expenses		6,000				4,000
Total current assets		286,000				278,000
Plant and equipment (net)		210,000				210,000
Intangibles		40,000				0
Total assets	$	536,000			$	488,000
Liabilities and Stockholders’ Equity
Liabilities
Current liabilities
Accounts payable	$	80,000			$	108,000
Other		34,000				30,000
Total current liabilities		114,000				138,000
Bonds payable		132,000				134,000
Total liabilities		246,000				272,000
Stockholders’ equity
Common stock (100,000 shares)		230,000				230,000
Retained earnings		60,000				(14,000	)
Total stockholders’ equity		290,000				216,000
Total liabilities and stockholders’ equity	$	536,000			$	488,000

Required

Calculate the following ratios for 2018 and 2019. Since 2017 numbers are not presented, do not use averages when calculating the ratios for 2018. Instead, use the number presented on the 2018 balance sheet.

1. Net margin. (Round your answers to 2 decimal places.)
2. Return on investment. (Round your answers to 2 decimal places.)
3. Return on equity. (Round your answers to 2 decimal places.)
4. Earnings per share. (Round your answers to 2 decimal places.)
5. Price-earnings ratio (market prices at the end of 2018 and 2019 were $11.88 and $9.54, respectively). (Round your intermediate calculations and final answers to 2 decimal places.)
6. Book value per share of common stock. (Round your answers to 2 decimal places.)
7. Times interest earned. Exclude extraordinary income in the calculation as they cannot be expected to recur and, therefore, will not be available to satisfy future interest payments. (Round your answers to 2 decimal places.)
8. Working capital.
9. Current ratio. (Round your answers to 2 decimal places.)
10. Quick (acid-test) ratio. (Round your answers to 2 decimal places.)
11. Accounts receivable turnover. (Round your answers to 2 decimal places.)
12. Inventory turnover. (Round your answers to 2 decimal places.)
13. Debt to equity ratio. (Round your answers to 2 decimal places.)
14. Debt to assets ratio. (Round your answers to the nearest whole percent.)

2019 2018 a. Net margin 17.14 % 15.43 % b. Return on investment 14.06 % 11.07 % c. Return on equity 28.46 % 25.00 % d. Earnings per share $0.72 $0.54 e. Price-earnings ratio 13.25 times 22.00 times f. Book value $2.90 g. Interest earned 20.00 times 16.00 times h. Working capital $172,000 $140,000 i. Current ratio 2.51 2.01 j. Quick (acid-test) ratio k. Accounts receivable turnover times 5.47 times l. Inventory turnover times 1.07 times m. Debt to equity ratio n. Debt to assets ratio 46 % 56 %

Please help me fill in the blanks...

Answer 1

Answer:-

Part 1:

For 2018:

Net Margin = Net Income / Net Sales *100
Net Margin = $54,000 / $350,000 *100
Net Margin = 15.43%

For 2019:

Net Margin = Net Income / Net Sales *100
Net Margin = $72,000 / $420,000 *100
Net Margin = 17.14%

Part 2:

For 2018:

Return on Investment = Net Income / Amount Invested *100
Return on Investment = $54,000 / $488,000 *100
Return on Investment =11.07%

For 2019:

Return on Investment = Net Income / Amount Invested *100
Return on Investment = $72,000 / $536,000 *100
Return on Investment =13.43%

Part 3:

For 2018:

Return on Equity = Net Income / Shareholder’s Equity
Return on Equity = $54,000 / $216,000 *100
Return on Equity = 25%

For 2019:

Return on Equity = Net Income / Shareholder’s Equity
Return on Equity = $72,000 / $290,000 *100
Return on Equity = 24.83%

Part 4:

For 2018:

Earnings per share = Net Income / Common Stock
Earning per shares = $54,000 / 100,000
Earning per shares = $0.54

For 2019:

Earning per share = Net Income / Common shares
Earning per share = $72,000 / $100,000
Earning per share = $0.72

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