In: Accounting
P13-3A Perform ratio analysis, and discuss change in financial position and operating results | |||||||||||
Condensed balance sheet and income statement data for Jergan Corporation are presented here. | |||||||||||
JERGAN CORPORATION | |||||||||||
Balance Sheet | |||||||||||
December 31 | |||||||||||
2017 | 2016 | 2015 | |||||||||
Cash | $30,000 | $20,000 | $18,000 | ||||||||
Accounts receivable (net) | 50,000 | 45,000 | 48,000 | ||||||||
Other current assets | 90,000 | 95,000 | 64,000 | ||||||||
Investments | 55,000 | 70,000 | 45,000 | ||||||||
Plant and equipment (net) | 500,000 | 370,000 | 358,000 | ||||||||
$725,000 | $600,000 | $533,000 | |||||||||
Current liabilities | $85,000 | $80,000 | $70,000 | ||||||||
Long-term debt | 145,000 | 85,000 | 50,000 | ||||||||
Common stock, $10 par | 320,000 | 310,000 | 300,000 | ||||||||
Retained Earnings | 175,000 | 125,000 | 113,000 | ||||||||
$725,000 | $600,000 | $533,000 | |||||||||
JERGAN CORPORATION | |||||||||||
Income Statement | |||||||||||
For the Year Ended December 31 | |||||||||||
2017 | 2016 | ||||||||||
Sales revenue | $740,000 | $600,000 | |||||||||
Less: Sales return and allowances | 40,000 | 30,000 | |||||||||
Net sales | 700,000 | 570,000 | |||||||||
Cost of goods sold | 425,000 | 350,000 | |||||||||
Gross profit | 275,000 | 220,000 | |||||||||
Operating expenses (including income taxes) | 180,000 | 150,000 | |||||||||
Net income | 95,000 | 70,000 | |||||||||
Additional information: | |||||||||||
1. | The market price of Jergan's common stock was $7.00, $7.50, and $8.50 for 2012, | ||||||||||
2016, and 2017, respectively. | |||||||||||
2. | You must compute dividends paid. All dividends were paid in cash. | ||||||||||
Instructions | |||||||||||
(a) | Compute the following ratios for 2016 and 2017. | ||||||||||
(1) Profit margin. | 5. Price-earnings ratio. | ||||||||||
(2) Gross profit rate. | 6. Payout ratio. | ||||||||||
(3) Asset turnover. | 7. Debt to assets ratio. | ||||||||||
(4) Earnings per share. | |||||||||||
(b) | Based on the ratios calculated, discuss briefly the improvement or lack thereof in the | ||||||||||
financial position and operating results from 2016 to 2017 of Jergan Corporation. | |||||||||||
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" . | |||||||||||
(a)(1) | Profit margin | ||||||||||
2017 | 2016 | ||||||||||
Net income | Value | Value | |||||||||
Net sales | Value | Value | |||||||||
Profit margin | ? | ? | |||||||||
(a)(2) | Gross profit rate | ||||||||||
2017 | 2016 | ||||||||||
Gross profit | Value | Value | |||||||||
Net sales | Value | Value | |||||||||
Gross profit rate | ? | ? | |||||||||
(a)(3) | Asset turnover | ||||||||||
2017 | 2016 | ||||||||||
Total assets, 2017 | Value | ||||||||||
Total assets, 2016 | Value | Value | |||||||||
Total assets, 2015 | Value | ||||||||||
Average total assets | ? | ? | |||||||||
2017 | 2016 | ||||||||||
Net sales | Value | Value | |||||||||
Average total assets | Value | Value | |||||||||
Asset turnover | ? | ? | |||||||||
(a)(4) | Earnings per share | ||||||||||
2017 | 2016 | ||||||||||
Common shares outstanding, 2017 | Value | ||||||||||
Common shares outstanding, 2016 | Value | Value | |||||||||
Common shares outstanding, 2015 | Value | ||||||||||
Average common shares outstanding | ? | ? | |||||||||
2017 | 2016 | ||||||||||
Net income - Pfd. Dividends | Value | Value | |||||||||
Average common shares outstanding | Value | Value | |||||||||
Earnings per share | ? | ? | |||||||||
(a)(5) | Price-earnings ratio | ||||||||||
2017 | 2016 | ||||||||||
Stock price per share | Value | Value | |||||||||
Earnings per share | Value | Value | |||||||||
Price-earnings ratio | ? | ? | |||||||||
(a)(6) | Payout ratio | ||||||||||
2017 | 2016 | ||||||||||
Prior year's retained earnings | Value | Value | |||||||||
Plus: current year net income | Value | Value | |||||||||
Less: current year's retained earnings | Value | Value | |||||||||
Cash dividends declared | ? | ? | |||||||||
2017 | 2016 | ||||||||||
Cash dividends declared (common) | Value | Value | |||||||||
Net income | Value | Value | |||||||||
Payout ratio | ? | ? | |||||||||
(a)(7) | Debt to assets ratio | ||||||||||
2017 | 2016 | ||||||||||
Current Liabilities | Value | Value | |||||||||
Long-term debt | Value | Value | |||||||||
Total liabilities | ? | ? | |||||||||
Total assets | Value | Value | |||||||||
Debt to assets ratio | ? | ? | |||||||||
After you have completed P13-3A, answer the additional question. | |||||||||||
1. | Assume that 2017 net income and total assets changed to $87,000 and total assets to | ||||||||||
$700,000. Show the impact of these changes on the ratios. | |||||||||||