The financial statements of ABC Company are given below: ABC Company Income Stat
ID: 2814460 • Letter: T
Question
The financial statements of ABC Company are given below: ABC Company Income Statement (2017) Sales $8,000,000 5,260,000 2,740,000 1,350,000 150,000 1,240,000 140,000 1,100,000 440,000 S660,000 Cost of goods sold Gross proft Selling and administrative expenses Depreciation Operating profit Interest expenses Income before tax Tax expense Net income Balance Sheet 2017 2016 Cash Accounts receivable Inventory Total current assets Fixed assets Total assets 200,000 $50,000 1,200,000 950,000 1,840,000 1,500,000 3,240,000 2,500,000 3,200,000 3,000,000 $6,440,000 $5,500,000 Accounts payable Bank loan Total current liabilities Bonds payable Total liabilities Common stock (130,000 shares) Retained earnings Total liabilities & equity 800,000 720,000 600,000 100,000 1,400,000 820,000 900,000 1,000,000 2,300,000 1,820,000 300,000 300,000 3,840,000 3,380,000 $6,440,000 $5,500,000 Note: The common shares are trading in the stock market for $40 each.Explanation / Answer
Solution :
11. The firm's Return on assets ratio for 2017:
The Return on assets ratio (ROA) is calculated as follows
(a) ROA = Net Income / Total assets (or)
(b) ROA = Net Income / Average assets
As per the Information given we have Net Income of ABC Company for 2017 as $ 660,000.
The total assets for the year 2017 = $ 6,440,000.
The Average assets for the year 2016 & 2017 = ($ 5,500,000 + $ 6,440,000)/2 = $ 5,970,000.
Thus as per Formula (a) we have ROA as =( $ 660,000 / $ 6,440,000) = 0.1025
Thus as per Formula (b) we have ROA as =( $ 660,000 / $ 5,970,000) = 0.1106
12. The firm's P/E Ratio for 2017:
The Price Earnings ratio is calculated as follows = (Market value per share / Earnings per share)
As per the information given we have market price per share = $ 40
The Earnings for the year 2017 = $ 660,000
The number of shares of the company = 130,000
Thus Earnings per share = (Earnings after tax / No. of shares) = ( $ 660,000 / 130,000 ) = 5.0769
Applying the above information in the formula for P/E Ratio we have
P/E Ratio for the year 2017 = (40/ 5.0769) = 7.8788
13. The firm's Market to Book value ratio for 2017 :
The market to book value ratio is calculated as follows = (Market value / Book value)
Here the market value is the market capitalization = Market value per share * No. of shares of the company
Book value is = Total assets – Total liabilities – Preference shares – Intangible assets.
As per the information given the question we have market price per share = $ 40.
The number of shares of the company = 130,000
Thus the Market capitalization or market value of the company = 130,000 * $ 40 = $ 5,200,000 (A)
Further as per the information in the question :
Total assets = $ 6,440,000 ; Total liabilities = $ 2,300,000 ; Preferred shares = Nil ; Intangible assets = Nil
Thus, book value of the company = $ 6,440,000 – $ 2,300,000 = $ 4,140,000 (B)
Thus the market to book value ratio = (A)/(B) = $ 5,200,000 / $ 4,140,000 = 1.2560
14. The firm's Price to sales ratio for 2017:
The price to sales ratio is calculated as follows:
= Market capitalization / Sales during the year
As per the information given the question we have market price per share = $ 40.
The number of shares of the company = 130,000
Thus the Market capitalization or market value of the company = 130,000 * $ 40 = $ 5,200,000 (A)
As per the information given in the question we have Sales during the year 2017= $ 8,000,000 (B)
Thus, Price to sales ratio = (A)/(B) = $ 5,200,000 / $ 8,000,000 = 0.65
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.