The comparative financial statements prepared at December 31 for Golden Corporat
ID: 2589765 • Letter: T
Question
The comparative financial statements prepared at December 31 for Golden Corporation showed the following summarized data:
Compute the gross profit percentage for the current and previous years. (Round your answers to 1 decimal place.)
Compute the net profit margin for the current and previous years. (Round your answers to 1 decimal place.)
Compute the earnings per share for the current and previous years.
TIP: To calculate EPS, use the balance in Common Stock to determine the number of shares outstanding. Common Stock equals the par value per share times the number of shares. (Round your answers to 2 decimal places.)
Stockholders’ equity totaled $38,400 at the beginning of the previous year. Compute the return on equity (ROE) ratios for the current and previous years. (Round your answers to 1 decimal place.)
Net property and equipment totaled $42,000 at the beginning of the previous year. Compute the fixed asset turnover ratios for the current and previous years. (Round your answers to 2 decimal places.)
Compute the debt-to-assets ratios for the current and previous years. (Round your answers to 2 decimal places.)
Compute the times interest earned ratios for the current and previous years. (Round your answers to 1 decimal place.)
After Golden released its current year’s financial statements, the company’s stock was trading at $44. After the release of its previous year’s financial statements, the company’s stock price was $32 per share. Compute the P/E ratios for both years. (Round your intermediate calculations and final answers to 2 decimal places.)
The comparative financial statements prepared at December 31 for Golden Corporation showed the following summarized data:
Explanation / Answer
1a) Gross profit percentage: Gross profit means total sales revenue less cost of goods sold. It is also known as gross profit before selling and administrative expenses. It indicates the gross profit generated by sale of goods. The gross profit ratio is calculated by dividing gross profit by total sales.
Gross margin percentage = (Gross profit / Total sales) * 100
Gross margin percentage (current year) =($ 112,000 / $250,000) * 100
Gross margin percentage (current year) = 44.8%
Gross margin percentage (previous year) = ($93,000 / $221,000) *100
Gross margin percentage (previous year) = 42.1 %
1b) The current year results are better than previous year because gross profit percentange has increased from 42.1% to 44.8%.
2a) Net profit margin measures the relationship between net profit and sales of firm.It indicates the net profit generated by sale of goods after meeting all expenses. The net profit ratio is calculated by dividing net profit by total sales.
Net profit margin = (Net profit / Total sales) * 100
Net profit margin (Current year ) = ($28,420 / $250,000) * 100
Net profit margin (Current year ) = 11.37%
Net profit margin (Previous year )= ($23,000 / $221,000) *100
Net profit margin (Previous year) =10.40%
2b) The current year results are better than previous year because net profit margin has increased from 10.40% to 11.37% this year.
3a) Earnings per share is the portion of a net profit (after paying dividend to preference shareholders) allocated to each outstanding share of common stock. It is calculated as follows:
Earning per share = Net profit / Average outstanding shares
Average outstanding shares is calculated by dividing common stock by its par value.
Average outstanding shares = 7680 shares ($38,400 / $5)
Earning per share (Current year) = $28,420 / 7680.
Earning per share (Current year) = $3.7
Earning per share (Previous year) =$23,000 / 7680
Earning per share (Previous year)= $3
3b) The current year results are better than previous year because earning per share has increased from $3 to $3.7 this year.
4a) Return on equity measures the firm's ability to generate profits by using stockholders equity. It is calculated as follows:
Return on equity = Net profits / Average stockholder's equity
Average stockholder's equity (Current year) = $65,310 ($38,400+$7,800+$31,820 + $38,400+$6,400+$7,800) / 2
Return on equity (Current year) = $28,420 / $65,310
Return on equity (Current year) = 0.435
Average stockholder's equity (Previous year) = $58,210($38,400+$7,800+$31,820 + $38,400) / 2
Return on equity (Previous year) = $23,000 / $58,210
Return on equity (Previous year) = 0.395
4b) The current year results are better than previous year because return on equity has increased from 0.395 to $0.435 this year.
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