The financial statements for Thor and Gunnar companies are summarized here: Thes

Question

The financial statements for Thor and Gunnar companies are summarized here: These two companies are in the same business and state but different cities. Each company has been in operation for about 10 years. Both companies received an unqualified audit opinion on the financial statements. Thor Company wants to borrow $107,000 and Gunnar Company is asking for $38,000. The loans will be for a two-year period. Neither company issued stock in the current year. Assume the end-of- year total assets and net equipment balances approximate the year's average and all sales are on account. Required: Calculate the following ratios. (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal places.)

Explanation / Answer

Thor Gunner Years of operations 10 - Years 10 - Years Borrowing $107,000 $38,000 Duration of borrowing 2 years 2 years Test of profitability Net profit Margin 10.12% 12.87% Gross Profit Percentage ( Gross profit / Sales ) sales Revenue 1126000 342000 Less : - GOGS 674000 182000 Gross Profit 452000 160000 Gross Profit Percentage 40.14% 46.78% (452000/1126000)*100 (160000/342000)*100 Asset turn Over ratio (Sales / total Asset ) sales Revenue 1126000 342000 Total asset 1246000 364400 Asset turn Over ratio 90.37% 93.85% This ratio indicates how effectively total assets of the business are used Return on Equity ( net profit after tax/ shareholder's Fund)*100 Net Income 114000 44000 shareholder's Fund Equity shatre capital + Reserves and sulplus + additional paid up capital- ficticiuos asset) Equity share capital 674000 254000 Additional paid up capital 72000 6800 Retained earnings/ reserves 58000 11600 Share holders fund 804000 272400 Return on Equity 14.18% 16.15% (114000/804000) (44000/272400) Earning per share ( net profit for equity share holders/ total number of share ) Net Income 114000 44000 Comman Stock 674000 254000 par value of share 20 20 Total number of share (comman stock / par value ) 33700 12700 EPS 3.38 3.46 (114000/33700) (44000/12700) Price earning ratio ( market price of the share / Earning per share ) EPS 3.38 3.46 Market price of share 14.5 30 Price earning ratio 4.29 8.66 (14.5/3.38) (30/3.46) Test Of liquidity Recievables Turnover net credit sales / {( opeing recieviable+ closing recieviable)/2} Net Recieviables 79000 30000 Net Recieviables - previous year 67800 29200 Net credit sales 1126000 342000 Recievables Turnover 15.34 11.55 (1126000/ {(79000+67800)/2} 342000/ {(30000+29200)/2} Days To collect (365/recieviable turnover) 23.79307282 31.59064327 Recieveiable turnover cost of goods sold / {( opeing stock of inventory+ closing stock of inventory)/2} COGS 674000 182000 Inventory 158000 34000 Inventory - previous year 135000 47600 Recieveiable turnover 4.60 4.46 (674000/((158000+135000)/2) 182000/(34000+47600)/2) Current asset ratio Current asset/ current laibilities Current asset cash 37000 34000 Accounts rec 79000 30000 Inventory 158000 34000 Total 274000 98000 Current laibilities 172000 22000 Current asset ratio 1.59 4.45 (274000/172000) 98000/22000 Debt to asset ratio Debt/ Total asset debt   Notes payable 270000 70000 Total asset 1246000 364400 Debt to asset ratio 0.217 0.192 Additional borrwoing not considered as they are of 2 years - short term

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