You are interested in investing in a regional hotel company and have investigate
ID: 2470174 • Letter: Y
Question
You are interested in investing in a regional hotel company and have investigated the financial statements of four potential investments. Use the information in the table below to answer the questions at the bottom of the page.
Key Financial Statistics
Hotel N
Hotel J
Hotel C
Hotel W
Information from the income statement
Total revenue
$10,099,000
$3,816,000
$428,806
$1,277,550
Total expenses
$9,503,000
$3,618,000
$354,461
$1,822,748
Information from the balance sheet
Current assets
$1,946,000
$1,020,000
$68,629
$526,549
Total assets
$8,668,000
$8,183,000
$262,388
$3,783,127
Current liabilities
$2,356,000
$895,000
$101,091
$693,809
Total liabilities
$4,587,000
$5,944,000
$456,441
$3,089,318
Total shares of common stock outstanding
225,800
389,000
32,312
168,238
(Use the table on the following page for your answers.)
What is the net profit (or net loss) for each company?
2. Calculate the return on sales for each company.
3. Calculate the total stockholders’ equity for each company.
4. What is the current ratio for each company?
5. Calculate the return on equity ratio for each company.
6. What is the debt to equity ratio for each company?
7. Calculate the basic earnings per share for each company.
Key Financial Ratios
Hotel N
Hotel J
Hotel C
Hotel W
1. Net income (net profit or net loss)
2. Return on sales
3. Current ratio
4. Stockholders’ equity
5. Return on equity
6. Debt-to-equity ratio
7. Earnings per share (basic)
8. Which company would you rather invest in? Why?
Key Financial Statistics
Hotel N
Hotel J
Hotel C
Hotel W
Information from the income statement
Total revenue
$10,099,000
$3,816,000
$428,806
$1,277,550
Total expenses
$9,503,000
$3,618,000
$354,461
$1,822,748
Information from the balance sheet
Current assets
$1,946,000
$1,020,000
$68,629
$526,549
Total assets
$8,668,000
$8,183,000
$262,388
$3,783,127
Current liabilities
$2,356,000
$895,000
$101,091
$693,809
Total liabilities
$4,587,000
$5,944,000
$456,441
$3,089,318
Total shares of common stock outstanding
225,800
389,000
32,312
168,238
Explanation / Answer
1.
Calculate the net profit (or net loss) for each company:
Details
Hotel N
Hotel J
Hotel C
Hotel W
Total revenue
$ 10,099,000
$ 3,816,000
$ 428,806
$ 1,277,550
Total expenses
$ 9,503,000
$ 3,618,000
$ 354,461
$ 1,822,748
Net profit /(loss)
$ 596,000
$ 198,000
$ 74,345
$ (545,198)
2.
Calculate the return on sales for each company:
Details
Hotel N
Hotel J
Hotel C
Hotel W
Operating profit (a)
$ 596,000
$ 198,000
$ 74,345
$ (545,198)
Net sales (b)
$ 10,099,000
$ 3,816,000
$ 428,806
$ 1,277,550
Return on sales (c) = (a) /(b) in (%)
5.90
5.19
17.34
-42.68
3.
Calculate the total stockholders’ equity for each company:
Details
Hotel N
Hotel J
Hotel C
Hotel W
Total assets (a)
$ 8,668,000
$ 8,183,000
$ 262,388
$ 3,783,127
Current liabilities (b)
$ 2,356,000
$ 895,000
$ 101,091
$ 693,809
Total liabilities (c )
$ 4,587,000
$ 5,944,000
$ 456,441
$ 3,089,318
Shareholder’s equity (d) = (a) - (b)-(c )
$ 1,725,000
$ 1,344,000
$ (295,144)
$ -
5.
Calculate the Return on equity ratio each company:
Details
Hotel N
Hotel J
Hotel C
Hotel W
Net income/(loss) (a)
$ 596,000
$ 198,000
$ 74,345
$ (545,198)
Shareholder’s equity (b)
$ 1,725,000
$ 1,344,000
$ (295,144)
$ -
Return on equity ratio (c ) = (a)/(b)
34.55
14.73
-25.19
-
6.
Calculate the Debt to equity ratio for all companies:
Details
Hotel N
Hotel J
Hotel C
Hotel W
Total liabilities (a)
$ 4,587,000
$ 5,944,000
$ 456,441
$ 3,089,318
Total Shareholder’s equity (b)
$ 1,725,000
$ 1,344,000
$ (295,144)
$ -
Debt to equity ratio (c ) = (a)/(b)
2.66
4.42
-1.55
Details
Hotel N
Hotel J
Hotel C
Hotel W
Total revenue
$ 10,099,000
$ 3,816,000
$ 428,806
$ 1,277,550
Total expenses
$ 9,503,000
$ 3,618,000
$ 354,461
$ 1,822,748
Net profit /(loss)
$ 596,000
$ 198,000
$ 74,345
$ (545,198)
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