(I have followed the instructions, but they are not working) Nineteen Measures o
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(I have followed the instructions, but they are not working)
Nineteen Measures of The ability of a firm to pay its debts as they come due.Solvency and The ability of a firm to earn income.Profitability
The comparative financial statements of Bettancort Inc. are as follows. The market price of Bettancort Inc. common stock was $71.25 on December 31, 2016.
Required:
Determine the following measures for 2016, rounding to one decimal place, except for dollar amounts, which should be rounded to the nearest cent. Use the rounded answer of the requirement for subsequent requirement, if required. Assume 365 days a year.
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1. Subtract current liabilities from current assets.
2. Divide current assets by current liabilities.
3. Divide quick assets by current liabilities. Quick assets are cash, temporary investments, and receivables.
4. Divide sales by average accounts receivable. Average Accounts receivable = (Beginning Net Accounts Receivable + Ending Net Accounts Receivable) ÷ 2.
5. Divide average accounts receivable by average daily sales. Average Accounts receivable = (Beginning Net Accounts Receivable + Ending Net Accounts Receivable) ÷ 2. Average daily sales are sales divided by 365 days.
6. Divide cost of goods sold by average inventory. Average Inventory = (Beginning Inventories + Ending Inventories) ÷ 2.
7. Divide average inventory by average daily cost of goods sold. Average Inventory = (Beginning Inventories + Ending Inventories) ÷ 2. Average daily cost of goods sold are cost of goods sold divided by 365 days.
8. Divide property, plant and equipment (net) by long-term liabilities.
9. Divide total liabilities by total stockholders' equity.
10. Divide the sum of income before income tax plus interest expense by interest expense.
11. Divide net income by preferred dividends from the retained earnings statement.
12. Divide sales by average total assets, excluding long-term investments. Average total assets = (Beginning total assets + Ending total assets) ÷ 2.
13. Divide the sum of net income plus interest expense by average total assets. Average total assets = (Beginning total assets + Ending total assets) ÷ 2.
14. Divide net income by average total stockholders' equity. Average total stockholders' equity = (Beginning total stockholders' equity + Ending total stockholders' equity) ÷ 2.
15. Divide net income minus preferred dividends from the retained earnings statement by average common stockholders' equity. Common stockholders' equity = Common stock + Retained earnings. Average common stockholders' equity = (Beginning common stockholders' equity + Ending common stockholders' equity) ÷ 2.
16. Divide net income minus preferred dividends from the retained earnings statement by common shares outstanding (common stock ÷ par value).
17. Divide common market share price by common earnings per share (use answer from requirement 16).
18. Divide common dividends (from Retained Earnings Statement) by common shares outstanding (common stock ÷ par value).
19. Divide common dividends per share (use answer from requirement 18) by market share price.
Bettancort Inc. Comparative Retained Earnings Statement For the Years Ended December 31, 2016 and 2015 2016 2015 Retained earnings, January 1 $2,655,000 $2,400,000 Add net income for year 300,000 280,000 Total $2,955,000 $2,680,000 Deduct dividends: On preferred stock $15,000 $15,000 On common stock 10,000 10,000 Total $25,000 $25,000 Retained earnings, December 31 $2,930,000 $2,655,000Explanation / Answer
Solution:
1) Working Capital = Current Assets - Current Liabilities
= 1,100,000 - 440,000
= 660,000
Calculation of Ratios:
Notes:
Quick assets = 450,000+300,000+130,000 = 880,000
Average Accounts receivable = (130,000 + 110,000)/2 = 120,000
Average daily sales = 1,200,000/ 365 = 3,288
Average Inventory = (67,000 + 5,000)/ 2 = 62,500
Average daily cost of goods sold = 500,000/ 365 = 1,370
Average total assets = ((4,770,000 - 2,350,000) + (4,355,000 - 2,200,000))/ 2 = 2,287,500
Average total stockholders' equity = (3,230,000 + 2,955,000)/ 2 = 3,092,500
Average common stockholders' equity = ((2,930,000 + 100,000) + (2,655,000 + 100,000))/ 2 = 2,892,500
Common shares outstanding = 100,000/ 10 = 10,000
Ratio Numerator / Denominator Calculated Value 2 Current ratio 1,100,000 440,000 2.5 3 Quick ratio 880,000 440,000 2.0 4 Accounts receivable turnover 1,200,000 120,000 10.0 5 Number of days' sales in receivables 120,000 3,288 36.5 6 Inventory turnover 500,000 62,500 8.0 7 Number of days' sales in inventory 62,500 1,370 45.6 8 Ratio of fixed assets to long-term liabilities 1,320,000 1,100,000 1.2 9 Ratio of liabilities to stockholders' equity 1,540,000 3,230,000 0.5 10 Number of times interest charges earned 446,000 66,000 6.8 11 Number of times preferred dividends earned 300,000 15,000 20.0 12 Ratio of net sales to assets 1,200,000 2,287,500 0.5 13 Rate earned on total assets 366,000 4,562,500 8% 14 Rate earned on stock- holders' equity 300,000 3,092,500 9.7% 15 Rate earned on common stockholders' equity 285,000 2,892,500 9.9% 16 Earnings per share on common stock 285,000 10,000 28.5 17 Price-earnings ratio 71.25 28.50 2.5 18 Dividends per share of common stock 10,000 10,000 1.0 19 Dividend yield 1 71.25 1.4Related Questions
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