Chapter 3 (2)

Chapter 3 (2) - .award:1 out of 1 pointCrabtree, Inc., had...

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Unformatted text preview: .award:1 out of 1 pointCrabtree, Inc., had additions to retained earnings for the year just ended of $626,000. The firm paid out $125,000 in cash dividends, and it has ending total equity of $7.21 million.Requirement 1: If the company currently has 580,000 shares of common stock outstanding, what are earnings per share, dividends per share and book value per share?(Do not include the dollar signs ($). Round your answers to 2 decimal places (e.g., 32.16).)Earnings per share Dividends per share Book value per share$ 1.29 $ 0.22 $ 12.43Requirement 2: If the stock currently sells for $29.10 per share, what is the market-to-book ratio and the price-earnings ratio? (Round your answers to 2 decimal places (e.g., 32.16).)Market-to-book ratio Price-earnings ratio2.34 22.55times timesRequirement 3:If total sales were $10.51 million, what is the price-sales ratio? (Round your answer to 2 decimal places (e.g., 32.16).)Price-sales ratio1.61timeseBook LinkWorksheetDifficulty: BasicLearning Objective: 03-02 Compute and, more importantly, interpret some common ratios.Crabtree, Inc., had additions to retained earnings for the year just ended of $626,000. The firm paid out $125,000 in cash dividends, and it has ending total equity of $7.21 million.Requirement 1: If the company currently has 580,000 shares of common stock outstanding, what are earnings per share, dividends per share and book value per share?(Do not include the dollar signs ($). Round your answers to 2 decimal places (e.g., 32.16).)Earnings per share Dividends per share Book value per share$ $ $Requirement 2: If the stock currently sells for $29.10 per share, what is the market-to-book ratio and the price-earnings ratio? (Round your answers to 2 decimal places (e.g., 32.16).)Market-to-book ratio Price-earnings ratiotimes timesRequirement 3: If total sales were $10.51 million, what is the price-sales ratio? (Round your answer to 2 decimal places (e.g., 32.16).)Price-sales ratiotimesExplanation: 1.We need to calculate the net income before we calculate the earnings per share. The sum of dividends and addition to retained earnings must equal net income, so net income must have been:Net income = Addition to retained earnings + Dividends Net income = $626,000 + $125,000 Net income = $751,000So, the earnings per share were:EPS = Net income / Shares outstanding EPS = $751,000 / 580,000 EPS = $1.29 per shareThe dividends per share were:Dividends per share Dividends per share Dividends per share= Total dividends / Shares outstanding = $125,000 / 580,000 = $0.22 per shareThe book value per share was:Book value per share Book value per share Book value per share2.= Total equity / Shares outstanding = $7,210,000 / 580,000 = $12.43 per shareThe market-to-book ratio is:Market-to-book ratio = Share price / Book value per share Market-to-book ratio = $29.10 / $12.43 Market-to-book ratio = 2.34 timesThe P/E ratio is:P/E ratio = Share price / EPS P/E ratio = $29.10 / $1.29 P/E ratio = 22.47 times3.Sales per share are:Sales per share Sales per share Sales per share= Total sales / Shares outstanding = $10,510,000 / 580,000 = $18.12The P/S ratio is:P/S ratio = Share price / Sales per share P/S ratio = $29.10 / $18.12 P/S ratio = 1.61 times2.award:1 out of 1 pointRainbow Company has a debt-equity ratio of 1.29. Return on assets is 7.54 percent, and total equity is $645,000.Requirement 1: What is the equity multiplier? (Round your answer to 2 decimal places (e.g., 32.16).)Equity multiplier2.29Requirement 2: What is the return on equity? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)Return on equity17.27%Requirement 3: What is the net income? (Do not include the dollar sign ($). Round your answer to the nearest whole dollar amount (e.g., 32).)Net income$ 111,370eBook LinkWorksheetDifficulty: BasicLearning Objective: 03-02 Compute and, more importantly, interpret some common ratios.Rainbow Company has a debt-equity ratio of 1.29. Return on assets is 7.54 percent, and total equity is $645,000.Requirement 1: What is the equity multiplier? (Round your answer to 2 decimal places (e.g., 32.16).)Equity multiplierRequirement 2: What is the return on equity? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)Return on equity%Requirement 3: What is the net income? (Do not include the dollar sign ($). Round your answer to the nearest whole dollar amount (e.g., 32).)Net income$Explanation:With the information provided, we need to calculate the return on equity using an extended return on equity equation. We first need to find the equity multiplier which is:Equity multiplier = 1 + Debt-equity ratio Equity multiplier = 1 + 1.29 Equity multiplier = 2.29Now we can calculate the return on equity as:ROE ROE ROE= (ROA)(Equity multiplier) = 0.0754(2.29) = 0.1727 or 17.27%The return on equity equation we used was an abbreviated version of the Du Pont identity. If we multiply the profit margin and total asset turnover ratios from the Du Pont identity, we get:(Net income / Sales)(Sales / Total assets) = Net income / Total assets = ROAWith the return on equity, we can calculate the net income as:ROE = Net income / Total equity 0.1727 = Net income / $645,000 Net income = $111,3703.award:1 out of 1 pointThe most recent financial statements for Shinoda Manufacturing Co. are shown below:SalesIncome Statement $ 64,000CurrentBalance Sheet $ 27,000 Debt$ 43,200Costs Taxable income Tax (35%) Net Incomeassets Fixed 44,780 assets $ 19,220 Total79,900 $ 106,900Equity Total63,700 $ 106,9006,727 $ 12,493Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 41 percent dividend payout ratio. No external financing is possible.Required: What is the internal growth rate? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)Internal growth rate7.41%eBook LinkWorksheetDifficulty: BasicLearning Objective: 03-03 Assess the determinants of a firms profitability and growth.The most recent financial statements for Shinoda Manufacturing Co. are shown below:Income Statement Sales Costs Taxable income Current $ 64,000 assets Fixed 44,780 assets $ 19,220 TotalBalance Sheet $ 27,000 79,900 $ 106,900 Debt Equity Total $ 43,200 63,700 $ 106,900Tax (35%) Net Income6,727 $ 12,493Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 41 percent dividend payout ratio. No external financing is possible.Required: What is the internal growth rate? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)Internal growth rate%Explanation:To calculate the internal growth rate, we need to find the ROA and the plowback ratio. The ROA for the company is:ROA = Net income / Total assets ROA = $12,493 / $106,900 ROA = 0.1169 or 11.69%And the plowback ratio is:b = 1 0.41 b = 0.59Now, we can use the internal growth rate equation to find:Internal growth rate Internal growth rate Internal growth rate= [(ROA)(b)] / [1 (ROA)(b)] = [0.1169(0.59)] / [1 0.1169(0.59)] = 0.0741 or 7.41%4.award:1 out of 1 pointThe most recent financial statements for Shinoda Manufacturing Co. are shown below:Income Statement Sales Costs Taxable income Tax (40%) Net Income $ $ $ Current 64,300 assets Fixed 44,630 assets 19,670 Total $Balance Sheet 28,500 Debt 81,400 Equity $ 109,900 Total $ 44,700 65,200 $ 109,9007,868 11,802Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 44 percent dividend payout ratio. No external financing is possible.Required: What is the sustainable growth rate? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)Sustainable growth rate11.28%eBook LinkWorksheetDifficulty: BasicLearning Objective: 03-03 Assess the determinants of a firms profitability and growth.The most recent financial statements for Shinoda Manufacturing Co. are shown below:Income Statement Sales Costs Taxable income Tax (40%) Net Income $ $ $ Current 64,300 assets Fixed 44,630 assets 19,670 Total $Balance Sheet 28,500 Debt 81,400 Equity $ 109,900 Total $ 44,700 65,200 $ 109,9007,868 11,802Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 44 percent dividend payout ratio. No external financing is possible.Required: What is the sustainable growth rate? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)Sustainable growth rate%Explanation:To calculate the sustainable growth rate, we need to find the ROE and the plowback ratio. The ROE for the company is:ROE = Net income / Equity ROE = $11,802 / $65,200 ROE = 0.1810 or 18.10%The computation of the plowback ratio:b = 1 0.44 b = 0.56The sustainable growth rate is:Sustainable growth rate Sustainable growth rate Sustainable growth rate= [(ROE)(b)] / [1 (ROE)(b)] = [(0.1810)(0.56)] / [1 (0.1810)(0.56)] = 0.1128 or 11.28%5.award:1 out of 1 pointYoung Trucking, Inc., has a current stock price of $44.00. For the past year, the company had net income of $7,000,000, total equity of $21,730,000, sales of $40,500,000, and 5.6 million shares of stock outstanding.Requirement 1: What are earnings per share? (Do not include the dollar sign ($). Round your answer to 2 decimal places (e.g., 32.16).)Earnings per share$ 1.25Requirement 2: What is the price-earnings ratio? (Round your answer to 2 decimal places (e.g., 32.16).)Price-earnings ratio35.00Requirement 3: What is the price-sales ratio? (Round your answer to 2 decimal places (e.g., 32.16).)Price-sales ratio6.08Requirement 4: What is the book value per share? (Do not include the dollar sign ($). Round your answer to 2 decimal places (e.g., 32.16).)Book value per share$ 3.88Requirement 5: What is the market-to-book ratio? (Round your answer to 2 decimal places (e.g., 32.16).)Market-to-book ratio11.34eBook LinkWorksheetDifficulty: BasicLearning Objective: 03-02 Compute and, more importantly, interpret some common ratios.Young Trucking, Inc., has a current stock price of $44.00. For the past year, the company had net income of $7,000,000, total equity of $21,730,000, sales of $40,500,000, and 5.6 million shares of stock outstanding.Requirement 1: What are earnings per share? (Do not include the dollar sign ($). Round your answer to 2 decimal places (e.g., 32.16).)Earnings per share$Requirement 2: What is the price-earnings ratio? (Round your answer to 2 decimal places (e.g., 32.16).)Price-earnings ratioRequirement 3: What is the price-sales ratio? (Round your answer to 2 decimal places (e.g., 32.16).)Price-sales ratioRequirement 4: What is the book value per share? (Do not include the dollar sign ($). Round your answer to 2 decimal places (e.g., 32.16).)Book value per share$Requirement 5: What is the market-to-book ratio? (Round your answer to 2 decimal places (e.g., 32.16).)Market-to-book ratioExplanation:1.The earnings per share are: EP = Net income / Shares S EP = $7,000,000 / 5,600,000 S EP = $1.25 S2.The price-earnings ratio is: P/E = Price / EPS P/E = $44.00 / $1.25 P/E = 35.203.The sales per share are: Sales per share = Sales / Shares Sales per share = $40,500,000 / 5,600,000 Sales per share = $7.23The price-sales ratio is:P/S = Price / Sales per share P/S = $44.00 / $7.23 P/S = 6.084.The book value per share is: Book value per share = Book value of equity / Shares Book value per share = $21,730,000 / 5,600,000 Book value per share = $3.88 per share5.The market-to-book ratio is: Market-to-book = Market value per share / Book value per share Market-to-book = $44.00 / $3.88 Market-to-book = 11.346.award:0 out of 1 pointThe Rose Company has net income of $157,850. There are currently 28.65 days sales in receivables. Total assets are $846,000, total receivables are $147,100, and the debt-equity ratio is 0.35.Requirement 1: What is the companys profit margin? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)Profit margin1.07%Requirement 2: What is the companys total asset turnover? (Round your answer to 2 decimal places (e.g., 32.16).)Total asset turnover.19timesRequirement 3: What is the companys ROE? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)ROE2.21%eBook LinkWorksheetDifficulty: IntermediateLearning Objective: 03-03 Assess the determinants of a firms profitability and growth.The Rose Company has net income of $157,850. There are currently 28.65 days sales in receivables. Total assets are $846,000, total receivables are $147,100, and the debt-equity ratio is 0.35.Requirement 1: What is the companys profit margin? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)Profit margin%Requirement 2: What is the companys total asset turnover? (Round your answer to 2 decimal places (e.g., 32.16).)Total asset turnovertimesRequirement 3: What is the companys ROE? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)ROE%Explanation: 1:To calculate the profit margin, we first need to calculate the sales. Using the days sales in receivables, we find the receivables turnover is:Days sales in receivables 28.65 days Receivables turnover= 365 days / Receivables turnover = 365 days / Receivables turnover = 12.74 timesNow, we can use the receivables turnover to calculate the sales as:Receivables turnover 12.74 Sales= Sales / Receivables = Sales / $147,100 = $1,874,048.866So, the profit margin is:Profit margin = Net income / Sales Profit margin = $157,850 / $1,874,048.866 Profit margin = 0.0842 or 8.42%2:The total asset turnover is:Total asset turnover Total asset turnover Total asset turnover3:= Sales / Total assets = $1,874,048.866 / $846,000 = 2.22 timesWe need to use the Du Pont identity to calculate the return on equity. Using this relationship, we get:ROE = (Profit margin)(Total asset turnover)(1 + Debt-equity ratio) ROE = (0.0842)(2.22)(1 + 0.35) ROE = 0.2519 or 25.19%7.award:1 out of 1 pointSome recent financial statements for Smolira Golf, Inc., follow.2009 Current assets Cash Account s receivable Inventor y Total $ $20103,031 4,737 12,598 20,366SMOLIRA GOLF, INC. Balance Sheets as of December 31, 2009 and 2010 2009 2010 Assets Liabilities and Owners Equity Current liabilities Accounts $ 3,007 $ 2,183 $ 2,660 payable Notes 5,721 1,780 2,176 payable 13,722 $ 22,450 Other Total Long-term debt Owners equity Common stock and paid-in surplus Accumul ated retained earnings $ $ 96 4,059 13,900 $ $ 113 4,949 16,660$41,000$41,000Fixed assets Net plant and equipment15,68439,55054,27779,709Total Total liabilities and owners equity$56,684$80,550Total assets$74,643$102,159$74,643$102,159Sales Cost of goods sold Depreciatio nSMOLIRA GOLF, INC. 2010 Income Statement $188,570 126,803 5,273EBIT Interest paid Taxable income Taxes Net income Dividends Retained earnings$56,494 1,370 55,124 19,293$$ $35,831 11,965 23,866Required: Find the following financial ratios for Smolira Golf (use year-end figures rather than average values where appropriate): (Do not include the percent signs (%). Round your answers to 2 decimal places (e.g., 32.16).)2009 Short-term solvency ratios a. Current ratio b. Quick ratio c. Cash ratio Asset utilization ratios d. Total asset turnover e. Inventory turnover f. Receivables turnover Long-term solvency ratios g. Total debt ratio h. Debt-equity ratio i. Equity multiplier j. Times interest earned ratio k. Cash coverage ratio 0.24 0.32 1.32 5.02 1.91 0.75 times times times2010 4.54 1.76 0.60 times times times1.85 9.24 32.96times times times0.21 0.27 1.27 41.24 45.08 times timesProfitability ratios l. Profit margin m. Return on assets n. Return on equity 19.00 35.00 44.48 % % %eBook LinkWorksheetDifficulty: IntermediateLearning Objective: 03-02 Compute and, more importantly, interpret some common ratios.Some recent financial statements for Smolira Golf, Inc., follow.2009 Current assets Cash Account s receivable Inventor y Total $ $20103,031 4,737 12,598 20,366SMOLIRA GOLF, INC. Balance Sheets as of December 31, 2009 and 2010 2009 2010 Assets Liabilities and Owners Equity Current liabilities Accounts $ 3,007 $ 2,183 $ 2,660 payable Notes 5,721 1,780 2,176 payable 13,722 $ 22,450 Other Total Long-term debt Owners equity Common stock and paid-in surplus Accumul ated retained earnings $ $ 96 4,059 13,900 $ $ 113 4,949 16,660$41,000$41,000Fixed assets Net 54,277 79,70915,68439,550Total$56,684$80,550plant and equipment Total liabilities and owners equityTotal assets$74,643$102,159$74,643$102,159Sales Cost of goods sold Depreciatio nSMOLIRA GOLF, INC. 2010 Income Statement $188,570 126,803 5,273EBIT Interest paid Taxable income Taxes Net income Dividends Retained earnings$56,494 1,370 55,124 19,293$$ $35,831 11,965 23,866Required: Find the following financial ratios for Smolira Golf (use year-end figures rather than average values where appropriate): (Do not include the percent signs (%). Round your answers to 2 decimal places (e.g., 32.16).)2009 Short-term solvency ratios a. Current ratio b. Quick ratio c. Cash ratio Asset utilization ratios times times times2010 ti me s ti me s ti me sd. Total asset turnover e. Inventory turnover f. Receivables turnover Long-term solvency ratios g. Total debt ratio h. Debt-equity ratio i. Equity multiplier j. Times interest earned ratio k. Cash coverage ratio Profitability ratios l. Profit margin m. Return on assets n. Return on equityti me s ti me s ti me sti me s ti me s % % %Explanation:Here, we need to calculate several ratios given the financial statements. The ratios are:Short-term solvency ratios:a. Current ratio = Current assets / Current liabilitiesCurrent ratio2009 = $20,366 / $4,059 Current ratio2009 = 5.02 timesCurrent ratio2010 = $22,450 / $4,949 Current ratio2010 = 4.54 timesb. Quick ratio = (Current assets Inventory) / Current liabilitiesQuick ratio2009 = ($20,366 12,598) / $4,059Quick ratio2009 = 1.91 timesQuick ratio2010 = ($22,450 13,722) / $4,949 Quick ratio2010 = 1.76 timesc. Cash ratio = Cash / Current liabilitiesCash ratio2009 = $3,031 / $4,059 Cash ratio2009 = 0.75 times Cash ratio2010 = $3,007 / $4,949 Cash ratio2010 = 0.61 timesAsset utilization ratios:d. Total asset turnover = Sales / Total assets Total asset turnover = $188,570 / $102,159 Total asset turnover = 1.85 timese. Inventory turnover = COGS / Inventory Inventory turnover = $126,803 / $13,722 Inventory turnover = 9.24 timesf. Receivables turnover = Sales / Receivables Receivables turnover = $188,570 / $5,721 Receivables turnover = 32.96 timesLong-term solvency ratios:g. Total debt ratio = (Current liabilities + Long-term debt) / Total assetsTotal debt ratio2009 = ($4,059 + 13,900) / $74,643Total debt ratio2009 = 0.24Total debt ratio2010 = ($4,949 + 16,660) / $102,159 Total debt ratio2010 = 0.21h. Debt-equity ratio = (Current liabilities + Long-term debt) / Total equityDebt-equity ratio2009 = ($4,059 + 13,900) / $56,684 Debt-equity ratio2009 = 0.32Debt-equity ratio2010 = ($4,949 + 16,660) / $80,550 Debt-equity ratio2010 = 0.27i. Equity multiplier = 1 + D/E ratioEquity multiplier2009 = 1 + 0.32 Equity multiplier2009 = 1.32 Equity multiplier2010 = 1 + 0.27 Equity multiplier2010 = 1.27 j. Times interest earned = EBIT / Interest Times interest earned = $56,494 / $1,370 Times interest earned = 41.24 timesk. Cash coverage ratio = (EBIT + Depreciation) / Interest Cash coverage ratio = ($56,494 + 5,273) / $1,370 Cash coverage ratio = 45.09 timesProfitability ratios:l. Profit margin = Net income / Sales Profit margin = $35,831 / $188,570Profit margin = 0.1900 or 19.00%m. Return on assets = Net income / Total assets Return on assets = $35,831 / $102,159 Return on assets = 0.3507 or 35.07%n. Return on equity = Net income / Total equity Return on equity = $35,831 / $80,550 Return on equity = 0.4448 or 44.48%8.award:1 out of 1 pointSome recent financial statements for Smolira Golf, Inc., follow.2009 Current assets Cash Account s receivable Inventor y Total $ $20102,851 4,707 12,718 20,276SMOLIRA GOLF, INC. Balance Sheets as of December 31, 2009 and 2010 2009 2010 Assets Liabilities and Owners Equity Current liabilities Accounts $ 2,707 $ 2,213 $ 2,720 payable Notes 5,661 1,810 2,236 payable 13,662 $ 22,030 Other Total Long-term debt Owners equity Common stock and paid-in surplus Accumul ated $ $ 102 4,125 14,500 $ $ 119 5,075 17,260$44,000 15,714$44,000 39,988Fixed assetsretained earnings Net plant and equipment 58,063 84,293 Total Total liabilities and owners equity $ 59,714 $ 83,988Total assets$78,339$106,323$78,339$106,323Sales Cost of goods sold Depreciatio n EBIT Interest paid Taxable income Taxes Net incomeSMOLIRA GOLF, INC. 2010 Income Statement $189,770 127,403 5,213$57,154 1,310 55,844 19,545$$ 12,02 5 24,27 436,299Dividends $ Retained earningsRequired: Construct the Du Pont identity for Smolira Golf. (Do not include the percent signs (%). Round your answers to 2 decimal places (e.g., 32.16).)Profit margin Total asset turnover19.00 1.78%Equity multiplier Return on equity1.26 43.00%eBook LinkWorksheetDifficulty: IntermediateLearning Objective: 03-03 Assess the determinants of a firms profitability and growth.Some recent financial statements for Smolira Golf, Inc., follow.2009 Current assets Cash Account s receivable Inventor y Total $ $20102,851 4,707 12,718 20,276SMOLIRA GOLF, INC. Balance Sheets as of December 31, 2009 and 2010 2009 2010 Assets Liabilities and Owners Equity Current liabilities Accounts $ 2,707 $ 2,213 $ 2,720 payable Notes 5,661 1,810 2,236 payable 13,662 $ 22,030 Other Total Long-term debt Owners equity Common stock and paid-in surplus Accumul ated retained earnings $ $ 102 4,125 14,500 $ $ 119 5,075 17,260$44,000$44,000Fixed assets Net plant and equipment Total assets $15,71439,98858,063 78,339 $84,293 106,323Total Total liabilities$ $59,714 78,339$ $83,988 106,323and owners equitySales Cost of goods sold Depreciatio n EBIT Interest paid Taxable income Taxes Net incomeSMOLIRA GOLF, INC. 2010 Income Statement $189,770 127,403 5,213$57,154 1,310 55,844 19,545$$ 12,02 5 24,27 436,299Dividends $ Retained earningsRequired: Construct the Du Pont identity for Smolira Golf. (Do not include the percent signs (%). Round your answers to 2 decimal places (e.g., 32.16).)Profit margin Total asset turnover Equity multiplier Return on equity% %Explanation:The Du Pont identity is:Profit margin= Net income / Sales = $36,299 / $189,770= 0.1913 or 19.13% Total asset turnover = Sales / Total assets = $189,770 / $106,323 = 1.78 = Total assets / Total equity = $106,323 / $83,988 = 1.27Equity multiplierROE = (PM)(Total asset turnover)(Equity multiplier) ROE = (0.1913)(1.78)(1.27) ROE = 0.4322 or 43.22%9.award:1 out of 1 pointSome recent financial statements for Smolira Golf, Inc., follow.2009 Current assets Cash Accoun ts receivable Invento ry Total $ $20103,121 4,752 12,538 20,411SMOLIRA GOLF, INC. Balance Sheets as of December 31, 2009 and 2010 2009 2010 Assets Liabilities and Owners Equity Current liabilities Accounts $ 3,157 $ 2,168 $ 2,630 payable 5,751 13,752 $ 22,660 Notes payable Other Total Long-term debt Owners equity Common stock and $ $ 1,765 93 4,026 13,100 $ $ 2,146 110 4,886 15,860$39,500$39,500Fixed assets Net plant and equipmentpaid-in surplus Accumul ated retained earnings 51,884 76,917 Total Total liabilities and owners equity $15,66939,33155,169$78,831Total assets$72,295$99,577$72,295$99,577Sales Cost of goods sold Depreciatio n EBIT Interest paid Taxable income Taxes Net incomeSMOLIRA GOLF, INC. 2010 Income Statement $187,970 126,503 5,303$56,164 1,400 54,764 19,167$$ 11,93 5 23,66 235,597Dividends $ Retained earningsSmolira Golf has 13,000 shares of common stock outstanding, and the market price for a share of stock at the end of 2010 was $80.Requirement 1: What is the price-earnings ratio? (Round your answer to 2 decimal places (e.g., 32.16).)Price-earnings ratio29.20Requirement 2: What is the price-sales ratio?(Round your answer to 2 decimal places (e.g., 32.16).)Price-sales ratio5.53Requirement 3: What are the dividends per share? (Do not include the dollar sign ($). Round your answer to 2 decimal places (e.g., 32.16).)Dividends per share$ 0.92Requirement 4: What is the market-to-book ratio at the end of 2010? (Round your answer to 2 decimal places (e.g., 32.16).)Market-to-book ratio13.19timeseBook LinkWorksheetDifficulty: IntermediateLearning Objective: 03-02 Compute and, more importantly, interpret some common ratios.Some recent financial statements for Smolira Golf, Inc., follow.2009 Current assets Cash2010$3,121SMOLIRA GOLF, INC. Balance Sheets as of December 31, 2009 and 2010 2009 2010 Assets Liabilities and Owners Equity Current liabilities $ 3,157 Accounts $ 2,168 $ 2,630payable Accoun ts receivable Invento ry Total $ 4,752 12,538 20,411 $ 5,751 13,752 22,660 Notes payable Other Total Long-term debt Owners equity Common stock and paid-in surplus Accumul ated retained earnings 51,884 76,917 Total Total liabilities and owners equity $ $ 1,765 93 4,026 13,100 $ $ 2,146 110 4,886 15,860$39,500$39,500Fixed assets Net plant and equipment15,66939,331$55,169$78,831Total assets$72,295$99,577$72,295$99,577Sales Cost of goods sold Depreciatio n EBIT Interest paid Taxable income Taxes Net incomeSMOLIRA GOLF, INC. 2010 Income Statement $187,970 126,503 5,303$56,164 1,400 54,764 19,167$$35,597Dividends $ Retained earnings11,93 5 23,66 2Smolira Golf has 13,000 shares of common stock outstanding, and the market price for a share of stock at the end of 2010 was $80.Requirement 1: What is the price-earnings ratio? (Round your answer to 2 decimal places (e.g., 32.16).)Price-earnings ratioRequirement 2: What is the price-sales ratio?(Round your answer to 2 decimal places (e.g., 32.16).)Price-sales ratioRequirement 3: What are the dividends per share? (Do not include the dollar sign ($). Round your answer to 2 decimal places (e.g., 32.16).)Dividends per share$Requirement 4: What is the market-to-book ratio at the end of 2010? (Round your answer to 2 decimal places (e.g., 32.16).)Market-to-book ratiotimesExplanation:1: To find the price-earnings ratio we first need the earnings per share. The earnings per share are:EPS EPS= Net income / Shares outstanding = $35,597 / 13,000EPS= $2.74So, the price-earnings ratio is:P/E ratio = Share price / EPS P/E ratio = $80 / $2.74 P/E ratio = 29.222: The sales per share are:Sales per share Sales per share Sales per share= Sales / Shares outstanding = $187,970 / 13,000 = $14.46So, the price-sales ratio is:P/S ratio P/S ratio P/S ratio= Share price / Sales per share = $80 / $14.46 = 5.533: The dividends per share are:Dividends per share Dividends per share Dividends per share= Total dividends /Shares outstanding = $11,935 / 13,000 shares = $0.92 per share4: To find the market-to-book ratio, we first need the book value per share. The book value per share is:Book value per share Book value per share Book value per share= Total equity / Shares outstanding = $78,831 / 13,000 shares = $6.06 per shareSo, the market-to-book ratio is:Market-to-book ratio = Share price / Book value per share Market-to-book ratio = $80 / $6.06 Market-to-book ratio = 13.19 times10.award:0 out of 1 pointFulkerson Manufacturing wishes to maintain a sustainable growth rate of 9.5 percent a year, a debt-equity ratio of 0.49, and a dividend payout ratio of 28 percent. The ratio of total assets to sales is constant at 1.26.Required: What profit margin must the firm achieve? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)Profit margin9.50%eBook LinkWorksheetDifficulty: IntermediateLearning Objective: 03-03 Assess the determinants of a firms profitability and growth.Fulkerson Manufacturing wishes to maintain a sustainable growth rate of 9.5 percent a year, a debt-equity ratio of 0.49, and a dividend payout ratio of 28 percent. The ratio of total assets to sales is constant at 1.26.Required: What profit margin must the firm achieve? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)Profit margin%Explanation:To find the profit margin, we can solve the Du Pont identity. First, we need to find the retention ratio. The retention ratio for the company is:b = 1 0.28 b = 0.72Now, we can use the sustainable growth rate equation to find the ROE. Doing so, we find:Sustainable growth rate = [(ROE)(b)] / [1 (ROE)(b)] 0.095 = [ROE(0.72)] / [1 ROE(0.72)] ROE = 0.1205 or 12.05%Now, we can use the Du Pont identity. We are given the total asset to sales ratio, which is the inverse of the total asset turnover, and the equity multiplier is one plus the debt-equity ratio. Solving the Du Pont identity for the profit margin, we find:ROE = (Profit margin)(Total asset turnover)(Equity multiplier) 0.1205 = (Profit margin)(1 / 1.26)(1 + 0.49) Profit margin = 0.1019 or 10.19%...
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Chapter 3 (2) - .award:1 out of 1 pointCrabtree, Inc., had...

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