Question

Ratio Analysis of Comparative Financial Statements

A comparative income statement and balance sheet of Miller Electronics Corporation for the last two years are shown.

Miller Electronics Corporation Comparative Income Statement For Years Ended December 31, 20-2 and 20-1
	20-2		20-1
Net Sales (all on account)		$646,120		$414,520
Cost of goods sold		384,590		253,000
Gross profit		$261,530		$161,520
Administrative expenses		$63,249		$41,647
Selling expenses		66,183		44,283
Total operating expenses		$129,432		$85,930
Operating income		$132,098		$75,590
Interest expense		1,316		1,222
Income before income taxes		$130,782		$74,368
Income tax expense		31,050		13,458
Net income		$99,732		$60,910

Miller Electronics Corporation Comparative Balance Sheet December 31, 20-2 and 20-1
	20-2		20-1
Assets
Current assets:
Cash		$43,567		$22,744
Receivables (net)		73,682		47,650
Merchandise inventory		90,794		50,184
Supplies and prepayments		3,664		1,106
Total current assets		$211,707		$121,684
Property, plant, and equipment:
Office equipment (net)		$11,593		$8,030
Factory equipment (net)		104,252		70,520
Total property, plant, and equipment		115,845		$78,550
Total assets		$327,552		$200,234
Liabilities
Current liabilities
Notes payable		$9,610		$6,110
Accounts payable		43,722		30,280
Accrued and withheld payroll taxes		6,344		5,454
Total current liabilities		$59,676		$41,844
Stockholders' Equity
Common stock ($10 par)		$100,000		$84,000
Retained earnings		167,876		74,390
Total stockholders' equity		$267,876		$158,390
Total liabilities and stockholders' equity		$327,552		$200,234

Required:

Calculate the following ratios and amounts for 20-1 and 20-2. Round all calculations to two decimal places.

(a)	Return on assets (Total assets on January 1, 20-1, were $171,954.)
(b)	Return on common stockholders' equity (Total common stockholders' equity on January 1, 20-1, was $108,200.)
(c)	Earnings per share of common stock (The average numbers of shares outstanding were 8,400 shares in 20-1 and 9,200 in 20-2.)
(d)	Book value per share of common stock
(e)	Quick ratio
(f)	Current ratio
(g)	Working capital
(h)	Receivables turnover and average collection period (Net receivables on January 1, 20-1, were $38,610.)
(i)	Merchandise inventory turnover and average number of days to sell inventory (Merchandise inventory on January 1, 20-1, was $48,434.)
(j)	Debt-to-equity ratio
(k)	Asset turnover (Assets on January 1, 20-1, were $171,954.)
(l)	Times interest earned ratio
(m)	Profit margin ratio
(n)	Assets-to-equity ratio
(o)	Price-earnings ratio (The market price of the common stock was $100.00 and $85.00 on December 31, 20-2 and 20-1, respectively.)

d. Book value per share of common stock:
20-2	???
20-1	18.86

I. Times interest earned ratio:
20-2	???
20-1	????

Answer 1

a) Return on assets = Net income / average Total assets

average inventory for 20-1 = $200,234 + 1,71,954 / 2

=   $1,86,094

for 20-1 = 60,910 / 1,86,094

= 0.33

for 20-2 = 99,732 /

average inventory for 20-2 = $200,234 + 3,27,552 / 2

= $2,63,893

(b)	Return on common stockholders' equity = Net income / commone shareholder's equity for 20 -1 = 60,910 / 108,200 = 0.56 for 20 - 2 = 99,732 / 84,000 = 1.19

C) Earning per share of common stockholder's equity = Net income - pref.divident / number of shares outstanding

for 20 - 1 = 60,910 / 8,400

= 7.25

for 20 - 2 =  99,732 / 9,200

= 10.84

d) Book value per share commone stock = commone share / number of share outstanding

for 20 - 1 = 108,200 / 8400

= 12.88

for 20 - 2 = 84000 / 9,200

= 9.13

e) Quick ratio = Current assets - inventory / current liabillities

for 20 - 1 = $121,684 - 50,184 / $ 41,844

= 1.71

for 20 - 2 = $211,707 - 90,794 / $59,676

= 2.03

f) current ratio = Current assets - inventory / current liabillities

for 20 - 1 = $121,684 / $ 41,844

= 2.91

for 20 - 2 = $211,707 / $59,676

= 3.55

g) Working capital = Current assets - current liabilities

for 20 - 1 = $121,684 - $ 41,844

= $79,840

    for 20 - 2 = $211,707 -  $59,676

= $152,031