In: Accounting
Ratios from Comparative and Common-Size
Data
Consider the following financial statements for Waverly Company.
During 2013, management obtained additional bond financing to
enlarge its production facilities. The company faced higher
production costs during the year for such things as fuel,
materials, and freight. Because of temporary government price
controls, a planned price increase on products was delayed several
months.
As a holder of both common and preferred stock, you decide to
analyze the financial statements:
WAVERLY COMPANY Balance Sheets (Thousands of Dollars) |
||
---|---|---|
Dec. 31, 2013 | Dec. 31, 2012 | |
Assets | ||
Cash and cash equivalents | $22,000 | $16,000 |
Accounts receivable (net) | 59,000 | 47,000 |
Inventory | 124,000 | 109,000 |
Prepaid expenses | 20,000 | 14,000 |
Plant and other assets (net) | 471,000 | 411,000 |
Total Assets | $696,000 | $597,000 |
Liabilities and Stockholders' Equity | ||
Current liabilities | $90,000 | $82,000 |
10% Bonds payable | 225,000 | 160,000 |
9% Preferred stock, $50 Par Value | 79,000 | 79,000 |
Common stock, $10 Par Value | 204,000 | 204,000 |
Retained earnings | 98,000 | 72,000 |
Total Liabilities and Stockholders' Equity | $696,000 | $597,000 |
WAVERLY COMPANY Income Statements (Thousands of Dollars) |
||
---|---|---|
2013 | 2012 | |
Sales revenue | $824,000 | $682,000 |
Cost of goods sold | 545,200 | 437,920 |
Gross profit on sales | 278,800 | 244,080 |
Selling and administrative expenses | 171,400 | 149,200 |
Income before interest expense and income taxes | 107,400 | 94,880 |
Interest expense | 26,500 | 20,000 |
Income before income taxes | 80,900 | 74,880 |
Income tax expense | 26,900 | 25,300 |
Net income | $54,000 | $49,580 |
Other financial data (thousands of dollars) | ||
Cash provided by operating activities | $65,200 | $60,500 |
Preferred stock dividends | 6,750 | 6,750 |
Required
a. Calculate the following for each year: current ratio, quick
ratio, operating-cash-flow-to-current liabilities ratio (current
liabilities were $78,000,000 at January 1, 2012), inventory
turnover (inventory was $87,000,000 at January 1, 2012),
debt-to-equity ratio, times-interest-earned ratio, return on assets
(total assets were $493,000,000 at January 1, 2012), and return on
common stockholders' equity (common stockholders' equity was
$236,000,000 at January 1, 2012).
b. Calculate common-size percentages for each year's income
statement.
Round answers to two decimal places.
2013 | 2012 | |
---|---|---|
Current ratio: | Answer | Answer |
Quick ratio: | Answer | Answer |
Operating-cash-flow-to-current-liabilities ratio: | Answer | Answer |
Inventory turnover: | Answer | Answer |
Debt-to-equity ratio: | Answer | Answer |
Times-interest-earned ratio: | Answer | Answer |
Return on assets: | Answer | Answer |
Return on common stockholders' equity: | Answer | Answer |
Round answers to one decimal place.
Income Statements | ||||
---|---|---|---|---|
Year Ended 2013 |
Common- Size |
Year Ended 2012 |
Common- Size |
|
Sales revenue | $824,000 | Answer | $682,000 | Answer |
Cost of goods sold | 545,200 | Answer | 437,920 | Answer |
Gross profit on sales | 278,800 | Answer | 244,080 | Answer |
Selling and administrative expenses | 171,400 | Answer | 149,200 | Answer |
Income before interest expense and income taxes | 107,400 | Answer | 94,880 | Answer |
Interest expense | 26,500 | Answer | 20,000 | Answer |
Income before income taxes | 80,900 | Answer | 74,880 | Answer |
Income tax expense | 26,900 | Answer | 25,300 | Answer |
Net income | $54,000 | Answer | $49,580 | Answer |