Question

The condensed financial statements of Marks Company for the years 2014-2015 are presented below:

Marks Company Comparative Balance Sheets As of December 31, 2014 and 2015

2015    2014

   Cash $367,000 $134,000

Accounts receivable (net) 373,000    308,000

   Inventories 379,000    342,000

   Plant and equipment 1,850,000 1,116,000

Accumulated depreciation (263,000 ) (192,000 )

   $2,706,000 $1,708,000

   Accounts payable $342,000 $163,000

Dividends payable -0-    43,000

   Bonds payable 400,000    -0-

Common stock ($10 par) 1,523,000 1,220,000

   Retained earnings 441,000    282,000

   $2,706,000 $1,708,000

Additional data:

Market value of stock at 12/31/15 is $80 per share.

Marks sold 35,000 shares of common stock at par on July 1, 2015.

Marks Company Condensed Income Statement For the Year Ended December 31, 2015

Sales revenue $2,428,000

Cost of goods sold 1,649,000

Gross profit 779,000

Administrative and selling expenses 500,000

Net income $279,000

Compute the following financial ratios by placing the proper amounts for numerators and denominators. (Round per unit answers to 2 decimal places, e.g. 52.75.)

(a) Current ratio at 12/31/15

(b) Acid test ratio at 12/31/15

(c) Accounts receivable turnover in 2015

(d) Inventory turnover in 2015

(e) Profit margin on sales in 2015

(f) Earnings per share in 2015

(g) Return on common stock equity in 2015

(h) Price earnings ratio at 12/31/15

(i) Debt to assets at 12/31/15

(j) Book value per share at 12/31/15

Answer 1

Calculations of ratios

Current Ratio = current assets/ currrent laibility

current assets = cash +accounts receviable+inventories

current assets = cash +accounts receviable+inventories

Current Assets = 367000+373000+379000=1119000

current lability / accounts payable = 342000

therefore current ratio = 1119000/342000= 3.27

b) Acid test ratio = current assets - inventories /current laibilities

acid test ratio = 1119000-379000= 740000

acid test ratio = 740000/342000 = 2.163

c) Account receviable turnover = sale / avereage accounts receviable

account receviable turnover = 2428000/527000 = 4.607

avereage accounts receviable= 373000+308000/2 =527000

D) inventory turnover= cost of goods sold/average inventory

average inventory = 379000+342000/2 = 550000

inventory turnover = 1649000/550000 = 2.998

e) profit margin = net income/sale *100

profir margin = 279000/2428000= 11%

F) Earning per share (EPS) = NET income/no of share outstanding

earning per share (EPS) = 279000/35000=7.97

g) return on common equity = net income /avg equity shareholder

avg common share = 1523000+1220000/2= 2133000

return on common equity = 279000/2133000 = 13%

h) Price earning ratio = Share price/ EPS

prie earning ratio= 80/7.97= 10.03

i) debt / equity = bonds payable/total assets

debt / equity = 400000/2706000= 0.147

j) Book value per share = common stock /no of stock outstanding

book value per share = 1523000/35000

book value per share= 43.51