Question

The comparative financial statements prepared at December 31 for Golden Corporation showed the following summarized data:

	Current			Previous
Income Statement
Sales revenue	$	290,000		$	253,000
Cost of goods sold		154,000			144,000
Gross profit		136,000			109,000
Operating expenses		75,300			68,000
Interest expense		4,900			4,800
Income before income taxes		55,800			36,200
Income tax expense		16,740			5,200
Net income	$	39,060		$	31,000
Balance Sheet
Cash	$	9,560		$	10,200
Accounts receivable (net)		41,000			34,000
Inventory		62,000			57,000
Property and equipment (net)		67,000			60,000
	$	179,560		$	161,200
Current liabilities	$	16,700		$	34,400
Note payable (long-term)		67,000			67,000
Common stock (par $5)		43,200			43,200
Additional paid-in capital		9,400			7,200
Retained earnings*		43,260			9,400
	$	179,560		$	161,200

*During the current year, cash dividends of $5,200 were declared and paid Compute the earnings per share for the current and previous years. TIP: To calculate EPS, use the balance in Common Stock to determine the number of shares outstanding. Common Stock equals the par value per share times the number of shares. (Round your answers to 2 decimal places.)

Stockholders’ equity totaled $43,200 at the beginning of the previous year. Compute the return on equity (ROE) ratios for the current and previous years. (Round your answers to 1 decimal place.)

Net property and equipment totaled $46,000 at the beginning of the previous year. Compute the fixed asset turnover ratios for the current and previous years. (Round your answers to 2 decimal places.)

  

Compute the debt-to-assets ratios for the current and previous years. (Round your answers to 2 decimal places.)

Compute the times interest earned ratios for the current and previous years. (Round your answers to 1 decimal place.) After Golden released its current year’s financial statements, the company’s stock was trading at $52. After the release of its previous year’s financial statements, the company’s stock price was $40 per share. Compute the P/E ratios for both years. (Round your intermediate calculations and final answers to 2 decimal places.)

Answer 1

Note: As per rule, I am answering only first 4 parts of this question.

	Current year	Previous year
1. EPS	EPS = Earnings available for stockhoders / Number of shares Earnings available for stockhoders = $39060 Number of shares $43200 / $5 = 8640 EPS ($39060 / 8640) = $4.52	EPS = Earnings available for stockhoders / Number of shares Earnings available for stockhoders = $31000 Number of shares $43200 / $5 = 8640 EPS ($31000 / 8640) = $3.59
2. ROE	ROE = Net income / Average stockholders’ equity Net income = $39060 Average stockholders’ equity ($95860 + $59800) / 2 = $77830 ROE ($39060 / $77830) = 50.2%	ROE = Net income / Average stockholders’ equity Net income = $31000 Average stockholders’ equity ($43200 + $59800) / 2 = $51500 ROE ($31000 / $51500) = 60.2%
3. Fixed asset turnover ratio	Fixed asset turnover ratio = Net sales / Average fixed assets Net sales = $290000 Average fixed assets ($67000 + $60000) / 2 = $63500 Fixed asset turnover ratio ($290000 / $63500) = 4.57	Fixed asset turnover ratio = Net sales / Average fixed assets Net sales = $253000 Average fixed assets ($46000 + $60000) / 2 = $53000 Fixed asset turnover ratio ($253000 / $53000) = 4.77
4. Debt-to-assets ratio	Debt-to-assets ratio = Total debts / Total assets Total debts ($16700 + $67000) = $83700 Total assets = $179560 Debt-to-assets ratio ($83700 / $179560) = 0.47	Debt-to-assets ratio = Total debts / Total assets Total debts ($34400 + $67000) = $101400 Total assets = $161200 Debt-to-assets ratio ($101400 / $161200) = 0.63