The following financial statements apply to Thornton Company: Year 4 Year 3 Revenues Net sales $...

The following financial statements apply to Thornton Company:

	Year 4		Year 3
Revenues
Net sales	$	210,100	$	175,600
Other revenues		8,600		6,600
Total revenues		218,700		182,200
Expenses
Cost of goods sold		125,900		102,500
Selling expenses		19,900		17,900
General and administrative expenses		10,100		9,100
Interest expense		1,500		1,500
Income tax expense		19,300		17,300
Total expenses		176,700		148,300
Net income	$	42,000	$	33,900
Assets
Current assets
Cash	$	5,400	$	6,400
Marketable securities		1,200		1,200
Accounts receivable		36,300		31,500
Inventories		101,800		95,000
Prepaid expenses		3,700		2,700
Total current assets		148,400		136,800
Plant and equipment (net)		106,500		106,500
Intangibles		21,100		0
Total assets	$	276,000	$	243,300
Liabilities and Stockholders’ Equity
Liabilities
Current liabilities
Accounts payable	$	38,500	$	55,500
Other		15,800		16,600
Total current liabilities		54,300		72,100
Bonds payable		65,600		66,600
Total liabilities		119,900		138,700
Stockholders’ equity
Common stock (43,000 shares)		113,000		113,000
Retained earnings		43,100		(8,400	)
Total stockholders’ equity		156,100		104,600
Total liabilities and stockholders’ equity	$	276,000	$	243,300

Required
Calculate the following ratios for Year 3 and Year 4. Since Year 2 numbers are not presented do not use averages when calculating the ratios for Year 3. Instead, use the number presented on the Year 3 balance sheet.

a. Net margin. (Round your answers to 2 decimal places.)
b. Return on investment. (Round your answers to 2 decimal places.)
c. Return on equity. (Round your answers to 2 decimal places.)
d. Earnings per share. (Round your answers to 2 decimal places.)
e. Price-earnings ratio (market prices at the end of Year 3 and Year 4 were $5.95 and $4.94, respectively). (Round your intermediate calculations and final answers to 2 decimal places.)
f. Book value per share of common stock. (Round your answers to 2 decimal places.)
g. Times interest earned. Exclude extraordinary income in the calculation as they cannot be expected to recur and, therefore, will not be available to satisfy future interest payments. (Round your answers to 2 decimal places.)
h. Working capital.
i. Current ratio. (Round your answers to 2 decimal places.)
j. Quick (acid-test) ratio. (Round your answers to 2 decimal places.)
k. Accounts receivable turnover. (Round your answers to 2 decimal places.)
l. Inventory turnover. (Round your answers to 2 decimal places.)
m. Debt-to-equity ratio. (Round your answers to 2 decimal places.)
n. Debt-to-assets ratio. (Round your answers to the nearest whole percent.)

Solutions

Expert Solution

Statement showing Calculation Of Ratios

S.No	Particulars	Year 3	Year 4
(a)	Net margin Ratio	19.20%	18.61%
(b)	Return on investments	18.94%	19.80%
(C)	Return on equity	37.17%	30%
(d)	Earning Per Share	$0.98	$0.79
(e)	Price earning Ratio	6.07 times	6.25 times
(f)	Book value per share	$3.63	$2.43
(g)	Times interest earned.	41.87 times	35.13 times
(h)	Working Capital	$94100	$64700
(i)	Current ratio	2.73	1.90
(j)	Quick (acid-test) ratio.	0.79	0.54
(k)	Accounts receivable turnover	5.79 times	5.57 times
(l)	Inventory turnover	1.24	1.08
(m)	Debt-to-equity ratio.	0.77	1.33
(n)	Debt-to-assets ratio.	43.44%	57%

Notes.

(a) The profit margin ratio can be calculated by dividing net income by total revenue.

(b) Return on investment can be calculated by deviding net income by Total assets-Current Liabilities.

(c)ROE Ratio = Net Income/ Shareholder's Equity.

(d) Earning per share= Net incomes devided by total number of shares.

(e)Price earning Ratio= Market price per share devided by Earning per share.

(f)Book Value per share= Equity share capital+Retained earning devided by total number of shares.

(g) time interest earned= Earning before interest and taxes devided by interest Expeness.

(h)Working capital= Total current assets-Total current liabilities.

(i)Quick ratio= total current assets-inventory-Prepaid expenes devided by total current liabilities.

(j) current ratio= total current assets devided by total current liabilities.

(k) Account receivable Turnover ratio=Total credit sales devided by Average account receivables.

(l)Inventory turnover ratio= Cost of goods sold devided by Average inventory.

(m)Debts to Equity ratio= Total debts devided by equity shareholders funds.

(n)Debts to total assets ratio= % of debts of total assets

ekkarill92 answered 8 months ago

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