Compute the following financial ratios by placing the proper amounts for numerat

Question

Compute the following financial ratios by placing the proper amounts for numerators and denominators. (Round per unit answers to 2 decimal places, e.g. 52.75.)

The condensed financial statements of Marks Company for the years 2014-2015 are presented below: Marks Company
Comparative Balance Sheets
As of December 31, 2014 and 2015 2015 2014 Cash $385,000 $160,000 Accounts receivable (net) 368,000 309,000 Inventories 379,000 341,000 Plant and equipment 1,834,000 1,112,000 Accumulated depreciation (260,000 ) (194,000 ) $2,706,000 $1,728,000 Accounts payable $341,000 $163,000 Dividends payable -0- 40,000 Bonds payable 401,000 -0- Common stock ($10 par) 1,523,000 1,240,000 Retained earnings 441,000 285,000 $2,706,000 $1,728,000 Additional data: Market value of stock at 12/31/15 is $80 per share. Marks sold 34,000 shares of common stock at par on July 1, 2015. Marks Company
Condensed Income Statement
For the Year Ended December 31, 2015 Sales revenue $2,401,000 Cost of goods sold 1,642,000 Gross profit 759,000 Administrative and selling expenses 504,000 Net income $255,000

Compute the following financial ratios by placing the proper amounts for numerators and denominators. (Round per unit answers to 2 decimal places, e.g. 52.75.)

(a) Current ratio at 12/31/15 $

$

(b) Acid test ratio at 12/31/15 $

$

(c) Accounts receivable turnover in 2015 $

$

(d) Inventory turnover in 2015 $

$

(e) Profit margin on sales in 2015 $

$

(f) Earnings per share in 2015 $

(g) Return on common stock equity in 2015 $

$

(h) Price earnings ratio at 12/31/15 $

$

(i) Debt to assets at 12/31/15 $

$

(j) Book value per share at 12/31/15 $

Explanation / Answer

(a) Current ratio = Current asset / Current liabilities = (Cash + Accounts receivable + Inventories) / Accounts payable

= $(385,000 + 368,000 + 379,000) / $341,000 = 1,132,000 / 341,000 = 3.32

(b) Quick ratio = (Current assets - inventories) / Current liabilities = $(385,000 + 368,000) / $341,000

= $753,000 / $341,000 = 2.21

(c) Accounts receivable turnover = Sales / Average accounts receivables = $2,401,000 / [$(368,000 + 309,000) / 2]

= $2,401,000 / $338,500 = 7.09

(d) Inventory turnover = Cost of goods sold / Average inventory = $1,642,000 / [$(379,000 + 341,000) / 2]

= $1,642,000 / $360,000 = 4.56

(e) Profit margin = Net income / Sales x 100 = $(255,000 / 2,401,000) x 100 = 10.62%

(f) Earning per share (EPS) = Net income / Number of shares outstanding = $255,000 / 34,000 = $7.50

(g) Return on common equity = Net income / Average shareholder equity = $255,000 / [$(1,523,000 + 1,240,000) / 2] x 100

= 18.46%

(h) Price earning ratio = Share price / EPS = $80 / $7.50 = 10.66

(i) Debt/Assets = Bonds payable / Total assets = $401,000 / $2,706,000 = 0.14819

(j) Book value per share = Common stock / Number of stocks outstanding = $1,523,000 / 34,000 = $44.79

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