Question

Golden Corporation declared and paid $3,700 of cash dividends during the current year ended December 31. Its financial statements also reported the following summarized data:

	Current				Previous
Income Statement
Sales revenue	$	215,000			$	193,000
Cost of goods sold		124,000				114,000
Gross profit		91,000				79,000
Operating expenses		60,300				56,000
Interest expense		3,400				3,300
Income before income taxes		27,300				19,700
Income tax expense		8,190				3,700
Net income	$	19,110			$	16,000
Balance Sheet
Cash	$	5,410			$	8,700
Accounts receivable (net)		26,000				26,500
Inventory		47,000				42,000
Property and equipment (net)		52,000				45,000
	$	130,410			$	122,200
Current liabilities	$	16,000			$	23,900
Note payable (long-term)		52,000				52,000
Common stock (par $5)		34,200				34,200
Additional paid-in capital		6,400				5,700
Retained earnings		21,810				6,400
	$	130,410			$	122,200

Required:

1. Compute the gross profit percentage for the current and previous years. Are the current year results better, or worse, than those for the previous year?
2. Compute the net profit margin for the current and previous years. Are the current year results better, or worse, than those for the previous year?
3. Compute the earnings per share for the current and previous years. Are the current year results better, or worse, than those for the previous year? 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.
4. Stockholders’ equity totaled $34,200 at the beginning of the previous year. Compute the return on equity (ROE) ratios for the current and previous years. Are the current year results better, or worse, than those for the previous year?
5. Net property and equipment totaled $38,500 at the beginning of the previous year. Compute the fixed asset turnover ratios for the current and previous years. Are the current year results better, or worse, than those for the previous year?
6. Compute the debt-to-assets ratios for the current and previous years. Is debt providing financing for a larger or smaller proportion of the company’s asset growth?
7. Compute the times interest earned ratios for the current and previous years. Are the current year results better, or worse, than those for the previous year?
8. After Golden released its current year’s financial statements, the company’s stock was trading at $37. After the release of its previous year’s financial statements, the company’s stock price was $28 per share. Compute the P/E ratios for both years. Does it appear that investors have become more (or less) optimistic about Golden’s future success?

Complete this question by entering your answers in the tabs below.

1-a. Compute the gross profit percentage for the current and previous years. (Round your answers to 1 decimal place.)

	1-a. Gross Profit Percentage Current Year % Previous Year %

Complete this question by entering your answers in the tabs below.

2-a. Compute the net profit margin for the current and previous years. (Round your answers to 1 decimal place.)

	2-a. Net Profit Margin Current Year % Previous Year    %

6-a. Compute the debt-to-assets ratios for the current and previous years. (Round your answers to 2 decimal places.)
6-b. Is debt providing financing for a larger or smaller proportion of the company’s asset growth?

	6-a. Debt-to-Assets Current Year Previous Year

8-a. After Golden released its current year’s financial statements, the company’s stock was trading at $37. After the release of its previous year’s financial statements, the company’s stock price was $28 per share. Compute the P/E ratios for both years. (Round your intermediate calculations to 2 decimal places and final answers to 1 decimal place.)

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	8-a. Price/Earnings Ratio Current Year Previous Year

Answer 1

1-a) Gross Profit Percentage:
	Current Year	Previous Year
Gross Profit (a)	$91,000	$79,000
Sales Revenue (b)	$215,000	$193,000
Gross Profit Percentage (a/b*100)	42.3%	40.9%
2-a) Net Profit Margin:
	Current Year	Previous Year
Net Income (a)	$19,110	$16,000
Sales Revenue (b)	$215,000	$193,000
Net Profit Margin (a/b*100)	8.9%	8.3%
6-a) Debt-to-Assets Ratio:
	Current Year	Previous Year
Current liabilities	$16,000	$23,900
Note payable (long-term)	$52,000	$52,000
Total Liabilities (a)	$68,000	$75,900
Total Assets (b)	$130,410	$122,200
Debt-to-Assets Ratio (a/b)	0.52	0.62
6-b) Compare with previous year, debt is providing smaller proportion of financing in the current year because the ratio was 0.62 in previous year but it decreased to 0.52 in the current year.
8-a) Price/Earnings Ratio
	Current Year	Previous Year
Market Price Per Share (a)	$37	$28
Net Income	$19,110	$16,000
Less: Preferred Dividends	$0	$0
Earnings available to Common Stockholders (b)	$19,110	$16,000
Number of outstanding common shares (c ) ($34,200/$5); ($34,200/$5)	6,840	6,840
Earnings Per Share (d = b/c)	$2.79	$2.34
Price/Earnings Ratio (a/d)	13.24	11.97