In: Accounting
Problem 12-92A
Preparation of Ratios
The financial statements for Burch Industries follow:
Burch Industries Consolidated Income Statements (in thousands, except per share data) |
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Year ended December 31, | ||||||
2019 | 2018 | 2017 | ||||
Revenues | $3,930,984 | $3,405,211 | $3,003,610 | |||
Costs and expenses: | ||||||
Cost of goods sold | $2,386,993 | $2,089,089 | $1,850,530 | |||
Selling and administrative | 922,261 | 761,498 | 664,061 | |||
Interest | 25,739 | 30,665 | 27,316 | |||
Other expenses (income) | 1,475 | 2,141 | (43) | |||
Total costs and expenses | $3,336,468 | $2,883,393 | $2,541,864 | |||
Income before income taxes | $594,516 | $521,818 | $461,746 | |||
Income taxes | 229,500 | 192,600 | 174,700 | |||
Net income | $365,016 | $329,218 | $287,046 |
Burch Industries Consolidated Balance Sheets (in thousands) |
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December 31, | ||||
ASSETS | 2019 | 2018 | ||
Current assets: | ||||
Cash and equivalents | $291,284 | $260,050 | ||
Accounts receivable, less allowance for doubtful accounts of $19,447 and $20,046 | 667,547 | 596,018 | ||
Inventories | 592,986 | 471,202 | ||
Deferred income taxes | 26,378 | 27,511 | ||
Prepaid expenses | 42,452 | 32,977 | ||
Total current assets | $1,620,647 | $1,387,758 | ||
Property, plant, and equipment | $571,032 | $497,795 | ||
Less accumulated depreciation | (193,037) | (151,758) | ||
Net property, plant, and equipment | $377,995 | $346,037 | ||
Goodwill | 157,894 | 110,363 | ||
Other assets | 30,927 | 28,703 | ||
Total assets | $2,187,463 | $1,872,861 | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: | ||||
Current portion of long-term debt | $52,985 | $3,652 | ||
Notes payable | 108,165 | 105,696 | ||
Accounts payable | 135,701 | 134,729 | ||
Accrued liabilities | 138,563 | 134,089 | ||
Income taxes payable | 17,150 | 42,422 | ||
Total current liabilities | $452,564 | $420,588 | ||
Long-term debt | 15,033 | 77,022 | ||
Noncurrent deferred income taxes | 29,965 | 27,074 | ||
Other noncurrent liabilities | 43,575 | 23,728 | ||
Commitments and contingencies | 0 | 0 | ||
Redeemable preferred stock | 300 | 300 | ||
Total liabilities | $541,437 | $548,712 | ||
Stockholders’ equity: | ||||
Common stock at stated value: | ||||
Class A convertible—26,691 and 26,919 shares outstanding | $159 | $161 | ||
Class B—49,161 and 48,591 shares outstanding | 2,720 | 2,716 | ||
Capital in excess of stated value | 108,451 | 93,799 | ||
Treasury stock (common at cost) | (7,790) | (6,860) | ||
Retained earnings | 1,542,486 | 1,234,333 | ||
Total stockholders’ equity | $1,646,026 | $1,324,149 | ||
Total liabilities and stockholders’ equity | $2,187,463 | $1,872,861 |
Use the following data to respond to the requirements
below.
2019 | 2018 | 2017 | |||
Average number of common shares outstanding | 77,063 | 76,602 | 76,067 | ||
Accounts receivable, net | $667,547 | $596,018 | $521,588 | ||
Inventories | 592,986 | 471,202 | 586,594 | ||
Total assets | 2,187,463 | 1,872,861 | 1,708,430 | ||
Stockholders’ equity | 1,646,026 | 1,324,149 | 1,032,789 | ||
Stock repurchases | 930,111 | 581,134 | 288,320 | ||
Cash flows from operating activities | 190,000 | 150,000 | 137,000 | ||
Common dividends paid | 57,797 | 45,195 | 39,555 | ||
Dividends per common share | 0.75 | 0.59 | 0.52 | ||
Market price per share: | |||||
High | 90.25 | 77.45 | 54.50 | ||
Low | 55.00 | 35.12 | 26.00 | ||
Close | 86.33 | 71.65 | 43.22 |
Year ended December 31, | |||
Industry Averages | 2019 | 2018 | |
Return on equity | 25.98% | 23.04% | |
profit margin | 0.05 | 0.04 | |
Asset turnover | 2.24 | 2.56 | |
Leverage | 2.32 | 2.25 |
Required:
1. Prepare all the financial ratios for Burch for 2019 and 2018. In your computations, round the tax rate to three decimal places (ie: .4693 would be .469). Round your final answers to two decimal places.
2019 | 2018 | |||
Short-Term Liquidity Ratios: | ||||
Current ratio | ||||
Quick ratio | ||||
Cash ratio | ||||
Operating cash flow ratio | ||||
Debt Management Ratios: | ||||
Times interest earned ratio (Accrual Basis) | ||||
Long-term debt to equity ratio | ||||
Debt to equity ratio | ||||
Long-term debt to total assets ratio | ||||
Debt to total assets ratio | ||||
Asset Efficiency Ratios: | ||||
Accounts receivables turnover ratio | ||||
Inventory turnover ratio | ||||
Asset turnover ratio | ||||
Profitability Ratios: | ||||
Gross profit percentage | % | % | ||
Operating margin percentage | % | % | ||
Net profit margin percentage | % | % | ||
Return on assets ratio | % | % | ||
Return on equity ratio | % | % | ||
Stockholder Ratios: | ||||
Earnings per share (EPS) | $ | $ | ||
Return on common equity | % | % | ||
Dividend yield ratio | % | % | ||
Dividend payout ratio | % | % | ||
Total payout ratio | % | % | ||
Stock repurchase payout | % | % |
2. Conceptual Connection: Is Burch's short-term
liquidity adequate?
Yes
3. Conceptual Connection: Is Burch using its assets efficiently?
Yes, because receivables and inventory turnovers appear strong.
4. Conceptual Connection: Determine whether
Burch is profitable.
Yes
5. Conceptual Connection: Discuss whether long-term creditors should regard Burch as a high-risk or a low-risk firm.
Low-risk
6. Perform a Dupont analysis for 2018 and 2019. Round your intermediate calculations and final answers to two decimal places.
Dupont Analysis | |
2019 | % |
2018 | % |
(ALL VALUES IN $) | ||
Part 1 | ||
2019 | 2018 | |
Short-Term Liquidity Ratios: | ||
Current ratio (Current assets/Current Liab.) | 3.581 | 3.300 |
Quick ratio [(cash+account receivable)/current liab] | 2.119 | 2.035 |
Cash ratio (Cash/Current Liab.) | 0.644 | 0.618 |
Operating cash flow ratio (Operating cash/Current Liab. | 0.420 | 0.357 |
Debt Management Ratios: | ||
Times interest earned ratio (Accrual Basis) (Earning before interest & tax/Interest Charge) | 22.098 | 16.017 |
Long-term debt to equity ratio | 0.009 | 0.058 |
Debt to equity ratio (Total Debt/Equity fund) | 0.329 | 0.414 |
Long-term debt to total assets ratio | 0.007 | 0.041 |
Debt to total assets ratio (Total Debt/Total Asset) | 0.248 | 0.293 |
Asset Efficiency Ratios: | ||
Accounts receivables turnover ratio (Sales/Average Accounts Receivabke | 6.222 | 6.094 |
Inventory turnover ratio (Cost of goods sold/Average inventory) | 4.486 | 3.950 |
Asset turnover ratio (Revenue/Total Asset) | 1.936 | 1.902 |
Profitability Ratios: | ||
Gross profit percentage [(Revenue-COGS)-Revenure} | 39% | 39% |
Operating margin percentage (EBIT/Revenue) | 14% | 14% |
Net profit margin percentage (Net Profit/Revenue) | 9% | 10% |
Return on assets ratio (EBIT/Total Assets) | 26% | 26% |
Return on equity ratio (EBIT/Equity Funds) | 22% | 25% |
Stockholder Ratios: | ||
Earnings per share (EPS)(Earnings available for Shsreholder's/No. of equity shares) | 4.737 | 4.298 |
Return on common equity(Earnings available for Shsreholder's/Average No. of equity shares) | 4.751 | 4.313 |
Dividend yield ratio(Dividend per share/Market Price) | 1% | 1% |
Dividend payout ratio(Dividend per share/Earnings per share) | 0% | 0% |
Total payout ratio(Dividend per share/Earnings per share) | 0% | 0% |
Stock repurchase payout | 0.48 | 0.76 |
Part 2 | ||
Yes, short term liquidity ratio is in good position | ||
Part 3 | ||
Yes, because receivables and inventory turnovers appear strong. | ||
Part 4 | ||
Yes |