Problem 2-19 Assessing Financial Performance Using Ratio Analysis Given the foll

Question

Problem 2-19
Assessing Financial Performance Using Ratio Analysis

Given the following financial statements, historical ratios, and industry averages, calculate the MBA Company's financial ratios for 2010.

*Annual credit purchases of $6.2 million were made during the year.

*On December 31, 2010, the firm's common stock closed at a price of $27.50 per share.

Express the answers in decimal form.

*Based on a 365-day year and on end-of-year figures.

MBA Company Income Statement for the Year Ended December 31, 2010 Sales revenue $12,000,000 Less: Cost of goods sold* 9,000,000 Gross profit $3,000,000 Less: Operating expenses Selling expense $330,000 General and administrative expenses 590,000 Lease expense 60,000 Depreciation expense 240,000 Total operating expense 1,220,000 Operating profit (EBIT) $1,780,000 Less: Interest expense 267,000 Net profits before taxes $1,513,000 Less: Taxes (rate = 40%) 605,200 Net profits after taxes $907,800 Less: Preferred stock dividends 50,000 Earnings available for common stockholders $857,800 Earnings per share (EPS) $4.29

Explanation / Answer

current ratio = 1948000/1222000 = 1.59 quick ratio = 1948000-(940000) / 1222000 = 0.82 inventory turn over = COGS / average inventory = 9000000/940000 = 9.57 average collection period = 365 / account recivable turn over account recivable turn over = 12000000/764000 = 15.71 average collection period =365/15.71 = 23.23

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