Question

Ratios from Comparative and Common-Size Data Consider the following financial statements for Waverly Company. During 2013, management obtained additional bond financing to enlarge its production facilities. The company faced higher production costs during the year for such things as fuel, materials, and freight. Because of temporary government price controls, a planned price increase on products was delayed several months. As a holder of both common and preferred stock, you decide to analyze the financial statements: WAVERLY COMPANY Balance Sheets (Thousands of Dollars) Dec. 31, 2013 Dec. 31, 2012 Assets Cash and cash equivalents $19,000 $13,000 Accounts receivable (net) 56,000 44,000 Inventory 121,000 106,000 Prepaid expenses 21,000 14,000 Plant and other assets (net) 471,000 411,000 Total Assets $688,000 $588,000 Liabilities and Stockholders' Equity Current liabilities $91,000 $83,000 10% Bonds payable 226,000 161,000 9% Preferred stock, $50 Par Value 76,000 76,000 Common stock, $10 Par Value 201,000 200,000 Retained earnings 94,000 68,000 Total Liabilities and Stockholders' Equity $688,000 $588,000 WAVERLY COMPANY Income Statements (Thousands of Dollars) 2013 2012 Sales revenue $821,000 $679,000 Cost of goods sold 542,200 434,920 Gross profit on sales 278,800 244,080 Selling and administrative expenses 171,400 149,200 Income before interest expense and income taxes 107,400 94,880 Interest expense 22,500 17,000 Income before income taxes 84,900 77,880 Income tax expense 23,900 21,300 Net income $61,000 $56,580 Other financial data (thousands of dollars) Cash provided by operating activities $65,200 $60,500 Preferred stock dividends 6,750 6,750 Required a. Calculate the following for each year: current ratio, quick ratio, operating-cash-flow-to-current liabilities ratio (current liabilities were $78,000,000 at January 1, 2012), inventory turnover (inventory was $87,000,000 at January 1, 2012), debt-to-equity ratio, times-interest-earned ratio, return on assets (total assets were $493,000,000 at January 1, 2012), and return on common stockholders' equity (common stockholders' equity was $236,000,000 at January 1, 2012). b. Calculate common-size percentages for each year's income statement. a. Round answers to two decimal places. 2013 2012 Current ratio: Answer 0 Answer 0 Quick ratio: Answer 0 Answer 0 Operating-cash-flow-to-current-liabilities ratio: Answer 0 Answer 0 Inventory turnover: Answer 0 Answer 0 Debt-to-equity ratio: Answer 0 Answer 0 Times-interest-earned ratio: Answer 0 Answer 0 Return on assets: Answer 0 % Answer 0 % Return on common stockholders' equity: Answer 0 % Answer 0 % b. Round answers to one decimal place. Common-Size Percentages 2013 2012 Sales revenue Answer 0 % Answer 0 % Cost of goods sold Answer 0 % Answer 0 % Gross profit on sales Answer 0 % Answer 0 % Selling and administrative expenses Answer 0 % Answer 0 % Income before interest expense and income taxes Answer 0 % Answer 0 % Interest expense Answer 0 % Answer 0 % Income before income taxes Answer 0 % Answer 0 % Income tax expense Answer 0 % Answer 0 % Net income Answer 0 % Answer 0 %

Answer 1

Current Assets:	2013	2012
Cash	19000	13000
Accounts receivable	56000	44000
Inventory	121000	106000
Prepaid expense	21000	14000
	217000	177000
Current Liabilities:	91000	83000
Current ratio
Current Assets/Current Liabilities	2.38	2.13
Quick ratio
(current assets- inventory)/CL	1.05	0.86
Operating cash flow to Current liabilities
Cash provided by operating activities	65200	60500
Average current liabilities	(91000+83000)/2	(83000+78000)/2
	87000	80500
	0.75	0.75
Inventory turnover
Cost of goods sold	542200	434920
Average inventory	(121000+106000)/2	(106000+87000)/2
	113500	96500
ITR	4.78	4.51
Debt to equity ratio
Total Liabilities
Current Liabilities:	91000	83000
10% Bonds Payable	226000	161000
	317000	244000
Equtiy
Retained earnings	94000	68000
9% Preffered stock	76000	76000
Common stock	201000	200000
	371000	344000
Debt to equity ratio	0.85	0.71
Times interest earned ratio:	EBIT/INTEREST EXPENSE
EBIT	107400	94880
Interest expense	22500	17000
Times interest earned ratio:	4.77	5.58
Return on assets
Average assets:	(688000+588000)/2	(588000+493000)/2
	638000	540500
Net income	61000	56580
	0.096	0.105
Return on common stockholders equity
Average common stockholders' equity	357500	290000
Net income	61000	56580
	0.171	0.195

Vega company
Common size income statement
	2013	%	2012	%
Sales revenue	821000	100%	679000	100%
Less: cost of goods sold	542200	66.04%	434920	64.05%
Gross profit	278800	33.96%	244080	35.95%
Selling and administration expense	171400	20.88%	149200	21.97%
Income before interest and income tax	107400	13.08%	94880	13.97%
Interest expense	22500	2.74%	17000	2.50%
Income before income tax	84900	10.34%	77880	11.47%
income tax	23900	2.91%	21300	3.14%
Net income	61000	7.43%	56580	8.33%