Compute times-interest-earned ratio and inventory turnover

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Reference no: EM131139645

Financial Statement Analysis

I. Large Land Photo Shop has asked you to determine whether the company's ability to pay current liabilities and total liabilities improved or deteriorated during 2012. To answer this question, you gather the following data:

 

2012

2011

Cash

$58,000

$57,000

Short-term investments

31,000


Net receivables

110,000

132,000

Inventory

247,000

297,000

Total assets

585,000

535,000

Total current liabilities

255,000

222,000

Long-term note payable

46,000

48,000

Income from operations

180,000

153,000

Interest expense

52,000

39,000

1. Compute the following ratios for 2012 and 2011:

a. Current ratio
b. Acid-test ratio
c. Debt to equity ratio

II. Using ratios to evaluate a stock investment

Comparative financial statement data of Danfield, Inc., follow:

Danfield, Inc.

Danfield, Inc.
Comparative Income Statement
Years Ended December 31, 2012 and 2011

 

2012

2011

Net sales

$467,000

$428,000

Cost of goods sold

237,000

218,000

Gross profit

$230,000

$210,000

Operating expenses

136,000

134,000

Income from operations

$94,000

$76,000

Interest expense

9,000

10,000

Income before income tax

$85,000

$66,000

Income tax expense

24,000

27,000

Net income

$61,000

$39,000

Danfield, Inc.
Comparative Income Statement
Years Ended December 31, 2012 and 2011

 

2012

2011

2010*

Current assets:




Cash

$97,000

$95,000


Current receivables, net

112,000

118,000

$102,000

Inventories

145,000

163,000

203,000

Prepaid expenses

12,000

5,000


Total current assets

$366,000

$381,000


Property, plant, and equipment, net

211,000

179,000


Total assets

577,000

$560,000

598,000

Total current liabilities

$225,000

$246,000


Long-term liabilities

114,000

97,000


Total liabilities

$339,000

$343,000


Preferred stock, 3%

108,000

108,000


Common stockholders' equity, no par

130,000

109,000


Total liabilities and stockholders' equity

$577,000

$560,000


* Selected 2010 amounts

1. Market price of Danfield's common stock: $86.58 at December 31, 2012 and $46.54 at December 31, 2011.
2. Common shares outstanding: 12,000 during 2012 and 10,000 during 2011 and 2010.
3. All sales on credit.

Requirements

1. Compute the following ratios for 2012 and 2011:

a. Current ratio
b. Times-interest-earned ratio
c. Inventory turnover
d. Gross profit percentage
e. Debt to equity ratio
f. Rate of return on common stockholders' equity
g. Earnings per share of common stock
h. Price/earnings ratio

2. Decide (a) whether Danfield's ability to pay debts and sell inventory improved or deteriorated during 2012 and (b) whether the investment attractiveness of its common stock appears to have increased or decreased.

Reference no: EM131139645

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