Condensed balance sheet and income statement data for Landwehr Corporation appear below.

LANDWEHR CORPORATION Balance Sheets December 31 2018 2017 2016 $ 25,000 $ 20,000 45,000 95,000 70,000 370,000 $ 18,000 48,000 Cash Accounts receivable (net) Other current assets 50,000 90,000 75,000 400,000 64,000 45,000 358,000 Investments Plant and equipment (net) $640,000 $600,000 $533,000 $ 80,000 $ 70,000 50,000 $ 75,000 80,000

Additional information:

1. The market price of Landwehr’s common stock was $4.00, $5.00, and $8.00 for 2016, 2017, and 2018, respectively.

2. All dividends were paid in cash.

Instructions

(a) Compute the following ratios for 2017 and 2018.

(1) Profit margin.

(2) Asset turnover.

(3) Earnings per share. (Weighted-average common shares in 2018 were 32,000 and in 2017 were 31,000.)

(4) Price-earnings ratio.

(5) Payout ratio.

(6) Debt to assets ratio.

(b) Based on the ratios calculated, discuss briefly the improvement or lack thereof in financial position and operating results from 2017 to 2018 of Landwehr Corporation.

Solutions

Expert Solution

Ratios	Formula	Calculation /Result
		2017	2018
1) Profit Margin	Net income /Net sales	30000/700000 .0429 or 4.29%	45000/740000 .0608 or 6.08%
2) Asset turnover	Net sales /Average asset invested	700000/566500 1.24	740000/620000 1.19
3) Earning per share	[Net income -preferred dividend paid if any/weighted average common shares outstanding]	30000/31000 $ .97 per share	45000/32000 = $ 1.41 per share
4) Price earning ratio	Market price per share /Earning per share	5/.97 5.15	8/1.41 5.67
5) Payout ratio	Dividend /Net income	18000/30000 60%	25000/45000 55.56%
6) Debt to asset ratio	Total liabilities /total asset	[80000+85000]/600000 165000/600000 27.5%	[75000+80000]/640000 155000/640000 24.22%

Working :

2) Average asset invested = [Beginning asset +ending asset] /2

2017= [533000+600000]/ 2 =566500

2018 = [600000+640000]/2 = 620000

5) Dividend Paid =Beginning retained earning +Net income in current year -ending retained earning

2017 = 113000+30000-125000 = 18000

2018 = 125000+45000-145000= 25000

Ratios	Formula	Calculation /Result
		2017	2018
1) Profit Margin	Net income /Net sales	30000/700000 .0429 or 4.29%	45000/740000 .0608 or 6.08%
2) Asset turnover	Net sales /Average asset invested	700000/566500 1.24	740000/620000 1.19

Junaid answered 2 years ago

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