Question

Hyrkas Corporation's most recent balance sheet and income statement appear below:

Balance Sheet
December 31, Year 2 and Year 1
(in thousands of dollars)
	Year 2			Year 1
Assets
Current assets:
Cash	$	180		$	250
Accounts receivable, net		280			300
Inventory		250			220
Prepaid expenses		20			20
Total current assets		730			790
Plant and equipment, net		940			980
Total assets	$	1,670		$	1,770
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	220		$	250
Accrued liabilities		50			50
Notes payable, short term		40			40
Total current liabilities		310			340
Bonds payable		210			300
Total liabilities		520			640
Stockholders’ equity:
Common stock, $2 par value		200			200
Additional paid-in capital		330			330
Retained earnings		620			600
Total stockholders’ equity		1,150			1,130
Total liabilities & stockholders’ equity	$	1,670		$	1,770

Income Statement
For the Year Ended December 31, Year 2
(in thousands of dollars)
Sales (all on account)	$	1,320
Cost of goods sold		820
Gross margin		500
Selling and administrative expense		395
Net operating income		105
Interest expense		20
Net income before taxes		85
Income taxes (30%)		26
Net income	$	59

Dividends on common stock during Year 2 totaled $39 thousand. The market price of common stock at the end of Year 2 was $14.40 per share.

Required:

Compute the following for Year 2:

a. Gross margin percentage. (Round your answer to 1 decimal place.)

b. Earnings per share. (Round your answer to 2 decimal places.)

c. Price-earnings ratio. (Do not round intermediate calculations. Round your answer to 1 decimal place.)

d. Dividend payout ratio. (Do not round intermediate calculations. Round your "Percentage" answer to 1 decimal place.)

e. Dividend yield ratio. (Round your "Percentage" answer to 2 decimal places.)

f. Return on total assets. (Do not round intermediate calculations. Round your "Percentage" answer to 2 decimal places.)

g. Return on equity. (Round your "Percentage" answer to 2 decimal places.)

h. Book value per share. (Round your answer to 2 decimal places.)

i. Working capital. (Input your answer in thousands of dollars.)

j. Current ratio. (Round your answer to 2 decimal places.)

k. Acid-test (quick) ratio. (Round your answer to 2 decimal places.)

l. Accounts receivable turnover. (Round your answer to 2 decimal places.)

m. Average collection period. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 1 decimal place.)

n. Inventory turnover. (Round your answer to 2 decimal places.)

o. Average sale period. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 1 decimal place.)

p. Times interest earned ratio. (Round your answer to 2 decimal places.)

q. Debt-to-equity ratio. (Round your answer to 2 decimal places.)

Answer 1

Answer to Part a.
Gross Margin Percentage = Gross Margin / Sales * 100
Gross Margin Percentage = $500 / $1,320 * 100
Gross Margin Percentage = 37.9%

Answer to Part b.
Earnings per Share = (Net Income – Preferred Dividends) / Average Number of Common Shares Outstanding

Number of Common Shares Outstanding, Year 1 = $200 / 2 = 100 Shares
Number of Common Shares Outstanding, Year 2 = $200 / 2 = 100 Shares

Average Number of Common Shares Outstanding = (100 + 100) / 2
Average Number of Common Shares Outstanding = 100 Shares

Earnings per Share = ($59 - $0) / 100
Earnings per Share = $0.59

Answer to Part c.
Price – Earnings Ratio = Market Price per Share / Earnings per Share
Price – Earnings Ratio = $14.40 / $0.59
Price – Earnings Ratio = 24.4

Answer to Part d.
Dividend Payout Ratio = Dividends per Share / Earnings per Share

Dividend per Share = Common Stock Dividend / Common Shares Outstanding
Dividend per Share = $39 / 100
Dividend per Share = $0.39

Dividend Payout Ratio = $0.39 / $0.59
Dividend Payout Ratio = 66.1%

Answer to Part e.
Dividend Yield Ratio = Dividend per Share / Market Price per Share
Dividend Yield Ratio = $0.39 / $14.40 100
Dividend Yield Ratio = 2.71%

Answer to Part f.
Return on Total Assets = Adjusted Net Income / Average Total Assets

Adjusted Net Income = Net Income + [Interest Expense * (1 – Tax Rate)]
Adjusted Net Income = $59 + [$20 * (1 – 0.30)]
Adjusted Net Income = $73

Average Total Assets = ($1,670 + $1,770) /2
Average Total Assets = $1,720

Return on Total Assets = $73 / $1,720
Return on Total Assets = 4.24%