Financial statements for the North Mountain Chemical Company are given below. Us
ID: 2766229 • Letter: F
Question
Financial statements for the North Mountain Chemical Company are given below. Use this information to answer the questions that follow.
Balance Sheet (values in $ thousands)
Cash $1,250
Accounts receivable 8,000
Inventory 12,000
Current assets 21,250
Fixed and other assets 8,750
Total assets $30,000
Current liabilities $10,000
Long-term debt 8,000
Stockholders’ equity 12,000
Total liabilities and
stockholder’s equity $30,000
Income Statement (values in $ thousands)
Sales $50,000
Cost of goods sold 25,000
Operating expenses 15,000
Operating profit (EBIT) 10,000
Interest expense 2,500
Taxes 2,500
Net profit $5,000
Dividends paid to
common stockholders $1,250
Other Information for North Mountain
There are 5 million common shares outstanding.
The price of the common stock is $25.
The 5-year growth rate in earnings has been 16%.
Last year, North Mountain’s PE ratio was 28.
This year, the average PE ratio in the chemical industry is 20.
a. Calculate each of the following ratios for North Mountain. You must show work in the “show work” column, then put your answer in the “Answer” column. You must still show work for the two answers that are given to you. Round to two decimal places where necessary. The symbol (%) after a ratio, such as Dividend yield (%), means that your answer must be expressed as a percent.
Ratio
Show work
Answer
EPS
$1.00
PE
PEG
Book value per share
Price-to-book value
Dividends per share
$0.25
Dividend yield (%)
Payout ratio (%)
Current ratio
Accounts receivable turnover
Inventory turnover
Total asset turnover
Debt-equity ratio
Times interest earned
Net profit margin (%)
ROA (%)
ROE (%)
b. Do the PE and PEG ratios cause you to view this stock favorably or unfavorably? Give explanations in terms of both PE and PEG.
Ratio
Show work
Answer
EPS
$1.00
PE
PEG
Book value per share
Price-to-book value
Dividends per share
$0.25
Dividend yield (%)
Payout ratio (%)
Current ratio
Accounts receivable turnover
Inventory turnover
Total asset turnover
Debt-equity ratio
Times interest earned
Net profit margin (%)
ROA (%)
ROE (%)
Explanation / Answer
Solution:
1 Earing per share = Earnings available to equity shareholders/ Number of common shares oustanding EPS = 1 Earnings available to equity shareholders 5,000,000 Number of common shares oustanding 5,000,000 2 PE = Market price per share / EPS PE = 25 Market price per share 25 EPS 1 3 PEG = PE Ratio / Annual EPS Growth PE = 25 Annual EPS Growth 16% PEG = PE Ratio / Annual EPS Growth 1.5625 4 Book value per share = Stockholder's equity - Preferred stock / Average shares outstanding Stockholder's equity = 12,000,000 Number of common shares oustanding 5,000,000 Book value per share 2.4Related Questions
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