Question

P3-1. Calculating Ratios Below are the financial statements for Mowing and Maintenance, Inc.

Paul’s Plowing, Inc. Balance Sheet as of December 31, 2018 and 2017 (in millions of dollars)

Assets 2018 2017

Cash and marketable

securities $   140 $ 120   

Accounts receivable $240 $230

Inventory    $ 500 $425

Total Current Assets  $ 880 $ 775

Total assets $2,200 $1,850

Liabilities & Equity     2018    2017

Current liabilities:

Accrued wages and taxes $    80    $    90

Accounts payable     $ 130 $ 120

Notes payable    $240 $210

Total Current Liabilities  $ 450     $ 420

Long-term debt: $ 900     $ 750

Fixed assets:

Gross plant and equipment $1,180 $1,005

Less: Depreciation $160 $ 150

Net plant and equipment $1,020 $ 855

Other long-term assets $ 300 $ 220

Total Fixed Assets $1,320 $1,075

Stockholders’ equity:

Preferred stock (5 million shares) $    10    $    10

Common stock and paid-in surplus (10 million shares) $200 $ 200

Retained earnings $640 $470  

Total Equity $ 850 $    680

Total liabilities and equity $2,200 $ 1,850

Paul’s Plowing, Inc.

Income Statement for Years Ending December 31, 2018 and 2017

     (in millions of dollars)

2018 2017

Net sales (all credit) $ 920   $762

Less: Cost of goods sold $410 $325

Gross profits $510 $437

Less: Depreciation $14 $10

Other operating expenses $30 $25

Earnings before interest and taxes (EBIT) $466 $402

Less: Interest $96 $82

Earnings before taxes (EBT) $370 $320

Less: Taxes $148 $128

Per (common) share data:

Earnings per share (EPS)	$22.00	$19.00
Dividends per share (DPS)	$2.00	$2.00
Book value per share (BVPS)	$ 220.00	$185.00
Market value (price) per share (MVPS)	$275.00	$237.50

e. Fixed asset turnover 2018: 1.25 times

2017: 1.25 times

Net income		$ 222	$ 192
Less: Preferred stock dividends		$     2	$     2
Net income available to common stockholders		$ 220	$ 190
Less: Common stock dividends		20	20
Addition to retained earnings		$ 200	$ 170

f. Total asset turnover 2018: 0.85 times

2017: 0.85 times

g. Debt ratio 2018: 62.5%

2017: 62.5%

h. Times interest earned 2018: 8.50 times

2017: 8.50 times

i. Profit margin 2018: 28.75%

2017: 28.75%

j. ROA 2018: 19.75%

2017: 19.75%

k. ROE 2018: 36.88%

2017: 36.88%

l. Market-to-book ratio 2018: 2.55 times

2017: 2.55 times

m. PE ratio 2018: 15.60 times

2017: 15.60 times

Answer 1

A) Fixed asset turnover ratio = Net Sales / Net Property Plant and Equipment

Fixed asset turnover ratio for 2018 = 920 / 1,020

= 0.90 Times

Fixed asset turnover ratio for 2017 = 762 / 855

= 0.89 Times

B) Total asset turnover ratio = Net Sales / Total Assets

Total asset turnover ratio for 2018 = 920 / 2,200

= 0.42 Times

Total asset turnover ratio for 2017 = 762 / 1,850

= 0.41 Times

C) Debt ratio = Total Liabilities / Total Assets

Total Liabilities = Total Current Liabilities + Long-term debt

Debt ratio for 2018 = 1,350 / 2,200

= 0.6136 or 61.36%

Debt ratio for 2017 = 1,170 / 1,850

= 0.6324 or 63.24%

D) Times interest earned = EBIT / Interest Expense

Times interest earned ratio for 2018 = 466 / 96

= 4.85 Times

Times interest earned ratio for 2017 = 402 / 82

= 4.90 Times

As there are multiple questions asked, I have solved the first 4 parts. Please post the question separately for rest parts to be answered. Hope it helps you !!