4.1 Describe what information is derived from liquidity, solvency and profitability ratios.
Chapter 18-22Ratio AnalysisCompute the Profit Marginratio for 2009.Measures the percentage of each dollar of sales that results in net income.$199,000$1,818,500 = 10.9%Net IncomeNet Sales Profit Margin=Profitability Ratios*4.1 Describe what information is derived from liquidity, solvency and profitability ratios.
Chapter 18-234.2 Calculate EPS.Ratio AnalysisCompute the Earnings Per Sharefor 2009.A measure of the net income earned on each share of common stock (not reported on preferred stock).$199,000 57,000 (given)= $3.49 per shareNet IncomeWeighted Average Common Shares Outstanding Earnings Per Share=Profitability RatiosNOTE: If there are preferred dividends declared for the period, we must deduct them from net income to determine income available to common stock holders.NOTE THIS IN YOUR HW!!!
Chapter 18-244.3 Calculate EPS.Ratio AnalysisProfitability RatiosTHE COCA-COLA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31,200520042003(In millions except per share data)NET OPERATING REVENUES$ 23,104$ 21,742$ 20,857Cost of goods sold8,1957,6747,776GROSS PROFIT14,90914,06813,081Selling, general and administrative expenses8,7397,8907,287Other operating charges85480573OPERATING INCOME6,0855,6985,221Interest income235157176Interest expense240196178Equity income —net680621406Other loss —net(93)(82)(138)Gains on issuances of stock by equity investees23248INCOME BEFORE INCOME TAXES6,6906,2225,495Income taxes1,8181,3751,148NET INCOME$ 4,872$ 4,847$ 4,347BASIC NET INCOME PER SHARE$ 2.04$ 2.00$ 1.77DILUTED NET INCOME PER SHARE$ 2.04$ 2.00$ 1.77AVERAGE SHARES OUTSTANDING2,3922,4262,459Effect of dilutive securities133AVERAGE SHARES OUTSTANDING ASSUMING DILUTION2,3932,4292,462Refer to Notes to Consolidated Financial StatementsCoca-Cola
Chapter 18-25Ratio AnalysisProfitability Ratios*4.1 Describe what information is derived from liquidity, solvency and profitability ratios.Compute the Price Earnings Ratiofor 2009.The price-earnings (P-E) ratio reflects investors’ assessments of a company’s future earnings.$25 (given)$3.49= 7.16 timesMarket Price per Share of StockEarnings Per Share Price Earnings Ratio=A high PE ratio suggests that investors are expecting a higher earnings growth in the future.
Chapter 18-26Ratio AnalysisProfitability RatiosCompute the Payout Ratiofor 2009.Measures the percentage of earnings distributed in the form of cash dividends.$77,700$199,000= 39%Cash DividendsNet Income Payout Ratio=** From analysis of retained earnings.*4.1 Describe what information is derived from liquidity, solvency and profitability ratios.A LOW ratio indicates that the company is focused on retaining earnings rather than paying out dividends.
Chapter 18-27Ratio AnalysisSolvency RatiosSolvency ratios measure the ability of a company to survive over a long period of time.