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_______________________________________________________________________ JETER CORPORATION Income Statement For the Year Ended December 31, 2019 Sales.......................................................................................... $ 3,300,000 Co

_______________________________________________________________________

JETER CORPORATION

Income Statement

For the Year Ended December 31, 2019

Sales.......................................................................................... $ 3,300,000

Cost of goods sold....................................................................    1,950,000

Gross profits.......................................................................      1,350,000

Selling and administrative expense..........................................         650,000

Depreciation expense................................................................        230,000

Operating income................................................................         470,000

Interest expense........................................................................          80,000

Earnings before taxes.........................................................         390,000

Taxes.........................................................................................        140,000

Earnings after taxes............................................................         250,000

Preferred stock dividends............................................................       10,000

Net Income Available to Common Shareholders.....................    $   240,000

Shares outstanding..................................................................         150,000

Current Stock Price................................................................... $         16.00

_______________________________________________________________________

_______________________________________________________________________

Statement of Retained Earnings

For the Year Ended December 31, 2019

Retained earnings, balance, January 1, 2014............................       $800,000

Add: Earnings available to common stockholders, 2014......         240,000

Deduct: Cash dividends declared and paid in 2014..............         140,000

Retained earnings, balance, December 31, 2014......................       $900,000

_______________________________________________________________________

_______________________________________________________________________

Comparative Balance Sheets

For 2018 and 2019

                                                                                                                Year-End    Year-End

Assets                                                                                                 2018              2019

Current assets:

Cash....................................................................................      $ 100,000      $120,000

Accounts receivable (net)...................................................         500,000        510,000

Inventory............................................................................         610,000        640,000

Prepaid expenses.................................................................           60,000        30,000

Total current assets.......................................................      1,270,000     1,300,000

Investments (long-term securities)......................................           90,000          80,000

Plant and equipment...........................................................      2,000,000     2,600,000

Less: Accumulated depreciation...................................    1,000,000   1,230,000

Net plant and equipment.....................................................    1,000,000   1,370,000

Total assets...............................................................................    $2,360,000   $2,750,000

                                                                                                                Year-End     Year-End

Liabilities and Stockholders’ Equity                                               2018            2019

Current liabilities:

Accounts payable................................................................      $ 300,000     $ 550,000

Notes payable......................................................................         500,000        500,000

Accrued expenses...............................................................           70,000          50,000

Total current liabilities.....................................................         870,000     1,100,000

Long-term liabilities:

Bonds payable, 2030..........................................................        100,000        160,000

Total liabilities.................................................................         970,000     1,260,000

Stockholders’ equity:

Preferred stock, $100 par value..........................................           90,000          90,000

Common stock, $1 par value..............................................         150,000        150,000

Capital paid in excess of par...............................................         350,000        350,000

Retained earnings................................................................         800,000        900,000

Total stockholders’ equity...............................................    1,390,000   1,490,000

Total liabilities and stockholders’ equity.................................    $2,360,000   $2,750,000

_______________________________________________________________________

Calculate the 2019 Ratios using Jeter Corp.’s financial statements, assume stock price is $16.00/share. Also, Complete the Common Size Income Statement and Balance sheet for 2018 and 2019.

Profit Margin                                                                                 Total Asset Turnover

Operating Profit Margin                                                                EPS (Earnings per share)

Price/Earnings Ratio

Return on Assets                                                                                                                                               

Return on Equity                                                                           Liabilities to total assets ratio

A/R Average Collection Period

Inventory Day’s Sales on hand

Inventory Turnover

Current Ratio

Quick Ratio

Times Interest Earned

Fixed Asset Turnover

Gross Profit Margin

Solutions

Expert Solution

Calculate the 2019 Ratios using Jeter Corp.’s financial statements

1. Profit Margin    = profit / sales

Profit = 250,000  sales = 3,300,000

Profit Margin    = 250000 / 3300000 = 0.07575 = 7.57%

2. Total Asset Turnover = sales / Average asset

Average asset = (Beginning + ending ) / 2

=( 2,360,000  + $2,750,000) / 2 = 2555000

Total Asset Turnover = 3300000 / 2555000 = 1.29 times

             

3. Operating Profit Margin     =     Operating Profit / sales

     Operating Profit = 470,000

          Operating Profit Margin     = 470,000 / 3300000 = 0.1424 = 14.24%

4. EPS (Earnings per share)  = IAC (Net Income Available to Common                        Shareholders) / share outstanding

           IAC = 240,000

            share outstanding = 150,000

      EPS (Earnings per share) = 240000 / 150000 = 1.6

5. Price/Earnings Ratio = Current Stock Price / EPS (Earnings per share)

             Current Stock Price  = 16 / share

      Price/Earnings Ratio =  16 / 1.6 = 10

6. Return on Assets        = Net income / Average assets

Net Income = 250,000

Average assets= 2555000

Return on Assets        = 250,000 / 2555000 = 0.0978 = 9.78%

               

7. Return on Equity       = Net income / Average equity

         Average equity = (beginning + ending) / 2

    Here we only use common stock equity, so deduct preferred equity from total stock holders equity

                       = ((1,390,000 - 90000) + (1,490,000 - 90000) ) / 2

                        = 1350000

     Return on Equity       = 250000 / 1350000 = 0.1852 = 18.52%

8. Liabilities to total assets ratio = Total liability / Total asset

                Total liability = 1,260,000

                 Total asset = 2,750,000

Liabilities to total assets ratio = 1,260,000 / 2,750,000 = 0.4582 = 45.825

9. A/R Average Collection Period  = Average A/R / Sales per day

           Average A/R = (opening + ending) / 2

                        = ( 500,000   +     510,000) / 2 = 505000

Sales per day = Sales / 365

            = 3,300,000 / 365 = 9041.1

        A/R Average Collection Period  = 505000 / 9041.1 = 56 days

10. Inventory Day’s Sales on hand = Average inventory / Cost of good per day

           Average inventory = (opening + ending) / 2

                        = ( 610,000    +    640,000) / 2 = 625000

Cost of goods sold per day = Cost of goods sold / 365

            = 1,950,000 / 365 = 5342.466

        A/R Average Collection Period  = 625000 / 5342.466 = 117 days

11. Inventory Turnover = Cost of goods sold / Average inventory

              = 1,950,000 / 625000 = 3.12

12. Current Ratio = current assets / Current liabilities

           current assets = 1,300,000

           Current liabilities = 1,100,000

Current Ratio = 1,300,000 / 1,100,000 = 1.18 times

13. Quick Ratio = Quick Asset / Current liabilities

            Quick Asset = current assets - ( inventory + prepaid expenses)

                        = 1,300,000 - (640,000 + 30,000 ) = 630000

         Quick Ratio = 630000 / 1,100,000 = 0.57 times

14. Times Interest Earned = Earning Before Interest and Tax / Interest Expenses

               Earning Before Interest and Tax =470,000

                Interest Expenses = 80,000

      Times Interest Earned = 470,000 / 80,000 = 5.875 times

15. Fixed Asset Turnover  = Sales / Average Fixed Asset

                Average Fixed Asset = (opening + ending) / 2

      ( 2,360,000 -1,270,000) + ( $2,750,000 - 1,300,000 ) = 1270000

         Fixed Asset Turnover  = 3300000 / 1270000 = 2.60 times

16. Gross Profit Margin = Gross profit / Sales

             Gross profit = 1,350,000

Gross Profit Margin = 1350000 / 3300000 = 0.4090 = 40.90%

Complete the Common Size Income Statement and Balance sheet for 2018 and 2019.

Common Size Income Statement ( vertical )

Common Size Income Statement

For the Year Ended December 31, 2019

Sales

100%

Cost of goods sold.

59.09%

Gross profits

40.90%

Selling and administrative expense

19.70%

Depreciation expense

6.97%

Operating income

14.24%

Interest expense

2.42%

Earnings before taxes

11.82%

Taxes

4.24%

Earnings after taxes

7.57%

Preferred stock dividends

0.30%

Net Income Available to Common Shareholders.

7.27%

Common Size Balance sheet for 2018 and 2019.

Here we prepare Horizontal common size balance sheet for 2018 and 2019.

We assume 2018 as base year

Horizontal common size Comparative Balance Sheets

For 2018 and 2019

(2019 figure as percentage of base year)

Vertical common size Comparative Balance Sheets

For 2018 and 2019

(As percentage of Total asset)

Year end 2018 (base year)

Year end 2019

2019

Assets

Current assets:

Cash..

100%

120%

4.23%

4.36%

Accounts receivable (net)..

100%

102%

21.18%

18.55%

Inventory

100%

105%

25.84%

23.27%

Prepaid expenses.

100%

50%

2.54%

1.09%

Total current assets.

100%

102.36%

53.81%

47.27%

Investments (long-term securities).

100%

88.89%

3.81%

2.90%

Plant and equipment

100%

130%

84.74%

94.545%

Less: Accumulated depreciation

100%

123%

42.37%

44.73%

Net plant and equipment..

100%

137%

42.37%

49.82%

Total assets.

100%

116.52%

100%

100%

           

Liabilities and Stockholders’ Equity            

Current liabilities:

Accounts payable

100%

183.33%

12.71%

20%

Notes payable.

100%

100%

21.18%

18.18%

Accrued expense

100%

71.43%

2.96%

1.82%

Total current liabilities.

100%

126.44%

36.86%

40%

Long-term liabilities:

Bonds payable, 2030.

100%

160%

4.24%

5.82%

Total liabilities

100%

129.90%

41.10%

45.82%

Stockholders’ equity:

Preferred stock, $100 par value

100%

100%

3.81%

3.27%

Common stock, $1 par value

100%

100%

6.35%

5.45%

Capital paid in excess of par..

100%

100%

14.83%

12.73%

Retained earnings.

100%

1125.5%

33.89%

32.72%

Total stockholders’ equity

100%

107.19%

58.90%

54.18%

Total liabilities and stockholders’ equity

100%

116.52%

100%

100%

jeff jeffy answered 2 years ago
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