Question
In: Finance
_______________________________________________________________________ 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% |
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