Question

Condensed balance sheet and income statement data for Swifty Corporation appear below:

SWIFTY CORPORATION Balance Sheet December 31
		2021		2020		2019
Cash		$ 27,500		$ 23,500		$ 18,500
Accounts receivable		50,500		50,000		48,500
Other current assets		94,500		95,500		65,000
Property, plant, and equipment (net)		530,000		471,500		401,000
		$702,500		$640,500		$533,000
Current liabilities		$ 71,500		$ 77,500		$ 70,000
Long-term debt		77,500		84,500		46,500
Common shares		318,000		280,000		287,000
Retained earnings		235,500		198,500		129,500
		$702,500		$640,500		$533,000

SWIFTY CORPORATION Income Statement For the Years Ended December 31
		2021		2020
Sales revenue		$790,000		$741,000
Less: Sales returns and allowances		36,000		59,000
Net sales		754,000		682,000
Cost of goods sold		411,500		375,000
Gross profit		342,500		307,000
Operating expenses (including income taxes)		201,500		227,000
Profit		$ 141,000		$ 80,000

Additional information:

1.		The market price of Swifty’s common shares was $3.00, $4.00, and $7.00 for 2019, 2020, and 2021, respectively.
2.		All dividends were paid in cash.
3.		Weighted-average common shares were 35,000 in 2021 and 30,500 in 2020.

1) Compute the following ratios for 2020 and 2021. (Round asset turnover, earnings per share and price earning ratio answers to 2 decimal places, e.g. 1.83 or 1.83% and all other answers to 1 decimal place e.g. 1.5%.)

2)

Based on the ratios calculated, indicate the improvement or lack thereof in Swifty Corporation’s financial position and operating results from 2020 to 2021.

Based on the ratios calculated, Swifty Corporation’s financial position and operating results from 2020 to 2021 is

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Condensed balance sheet and income statement data for Swifty Corporation appear below:

SWIFTY CORPORATION Balance Sheet December 31
		2021		2020		2019
Cash		$ 27,500		$ 23,500		$ 18,500
Accounts receivable		50,500		50,000		48,500
Other current assets		94,500		95,500		65,000
Property, plant, and equipment (net)		530,000		471,500		401,000
		$702,500		$640,500		$533,000
Current liabilities		$ 71,500		$ 77,500		$ 70,000
Long-term debt		77,500		84,500		46,500
Common shares		318,000		280,000		287,000
Retained earnings		235,500		198,500		129,500
		$702,500		$640,500		$533,000

SWIFTY CORPORATION Income Statement For the Years Ended December 31
		2021		2020
Sales revenue		$790,000		$741,000
Less: Sales returns and allowances		36,000		59,000
Net sales		754,000		682,000
Cost of goods sold		411,500		375,000
Gross profit		342,500		307,000
Operating expenses (including income taxes)		201,500		227,000
Profit		$ 141,000		$ 80,000

Additional information:

1.		The market price of Swifty’s common shares was $3.00, $4.00, and $7.00 for 2019, 2020, and 2021, respectively.
2.		All dividends were paid in cash.
3.		Weighted-average common shares were 35,000 in 2021 and 30,500 in 2020.

Compute the following ratios for 2020 and 2021. (Round asset turnover, earnings per share and price earning ratio answers to 2 decimal places, e.g. 1.83 or 1.83% and all other answers to 1 decimal place e.g. 1.5%.)

		2021			2020
Profit margin			%			%
Asset turnover			times			times
Earnings per share		$			$
Price-earnings ratio			times			times
Payout ratio			%			%
Debt to total assets			%			%
Gross profit margin			%			%

Answer 1

		2021	2020
Profit margin	Profit / Net Sales	18.7 %	11.7 %
Asset turnover	Net Sales / Average Total Assets	1.12	1.16
Earnings per share	Profit/ Weighted Average Common Shares	$ 4.03 per share	$ 2.62 per share
Price-earnings ratio	Market Price / Earnings per Share	1.74	1.53
Payout ratio	Dividends / Profit	73.8 %	13.8 %
Debt to total assets	Total Liabilities / Total Assets	21.2 %	25.3 %
Gross profit margin	Gross Profit / Net Sales	45.4 %	45.0 %

Based on the ratios calculated, Swifty Corporation's operating results have improved between 2020 and 2021. Both profit margin and gross profit margin have improved. Earnings per share and the dividend payout have increased significantly, and therefore, so has the prie-earnings ratio. Debt to total assets has decreased to 21.2 % from 25.3 %, which means that financial leverage on the books has decreased, thereby reducing financial risk. A larger proportion of assets is now being financed by equity rather than debt.

However, the asset turnover of the company has fallen from 1.16 to 1.12, which indicates that the assets are not being utilized efficiently enough to generate sales. While an investment of $ 1 in assets had generated sales of $ 1.6 in 2020, $ 1 invested in assets has been able to generate sales of $ 1.12 only in 2021. Therefore, the company should try to increase sales volume. Also, the company should try to minimize sales returns and allowances as far as possible.