Question

Problem 13-03A

Condensed balance sheet and income statement data for Ayayai Corporation are presented here.

AYAYAI CORPORATION Balance Sheets December 31
		2022		2021		2020
Cash		$ 31,000		$ 21,000		$ 19,000
Accounts receivable (net)		51,000		46,000		49,000
Other current assets		92,000		97,000		66,000
Investments		57,000		72,000		47,000
Plant and equipment (net)		500,000		370,000		358,000
		$731,000		$606,000		$539,000
Current liabilities		$ 86,000		$ 81,000		$ 71,000
Long-term debt		147,000		87,000		52,000
Common stock, $10 par		322,000		312,000		302,000
Retained earnings		176,000		126,000		114,000
		$731,000		$606,000		$539,000

AYAYAI CORPORATION Income Statements For the Years Ended December 31
		2022		2021
Sales revenue		$742,000		$602,000
Less: Sales returns and allowances		41,000		31,000
Net sales		701,000		571,000
Cost of goods sold		427,000		352,000
Gross profit		274,000		219,000
Operating expenses (including income taxes)		181,000		151,000
Net income		$ 93,000		$ 68,000

Additional information:

1.		The market price of Ayayai’s common stock was $7.00, $7.50, and $8.50 for 2020, 2021, and 2022, respectively.
2.		You must compute dividends paid. All dividends were paid in cash.

Compute the following ratios for 2021 and 2022.

		2022			2021
Profit margin		enter percentages	%		enter percentages	%		(Round answers to 1 decimal place, e.g. 1.5%.)
Gross profit rate		enter percentages	%		enter percentages	%		(Round answers to 1 decimal place, e.g. 1.5%.)
Asset turnover		enter asset turnover in times	times		enter asset turnover in times	times		(Round answers to 2 decimal places, e.g. 1.83.)
Earnings per share		$enter earnings per share in dollars			$enter earnings per share in dollars			(Round answers to 2 decimal places, e.g. 1.83.)
Price-earnings ratio		enter price-earnings ratio in times	times		enter price-earnings ratio in times	times		(Round answers to 1 decimal place, e.g. 1.5.)
Payout ratio		enter percentages	%		enter percentages	%		(Round answers to 0 decimal places, e.g. 15%.)
Debt to assets ratio		enter percentages	%		enter percentages	%		(Round answers to 0 decimal places, e.g. 15%.)

Answer 1

AYAYAI CORPORATION

Ratio Analysis:

		Formula	2022	2021
1	Profit margin	Net profit/Turnover	93,000/701,000 = 13.3%	68,000/571,000 = 11.9%
2	Gross profit margin	Gross profit/Turnover	274,000/701,000 = 39.1%	219,000/571,000 = 38.4%
3	Assets turnover	Turnover/Average assets	701,000/(731,000+606,000)/2 701,000/668,500 = 1.05 times	571,000/(606,000+539,000)/2 571,000/572,500 = 1 time
4	Earnings per share (EPS)	Earnings available to Equity shareholders / Weighted average Equity shares	93,000/(32,200+31,200)/2 93,000/31,700 = $ 2.93	68,000/(31,200+30,200)/2 68,000/30,700 = $ 2.21
5	Price earnings ratio	Market price / EPS	7/2.93 = 2.4 times	7.5/2.21 = 3.4 times
6	Pay out ratio	Divided per share / EPS	1.36/2.93 = 46%	1.82/2.21 = 82%
7	Dent to assets ratio	Total Debt / Total Assets	(86,000+147,000)/731,000 233,000/731,000 = 32%	(81,000+87,000)/606,000 168,000/606,000 = 28%

Dividend per share = (Net income - Change in retained earnings) / weighted average number of shares

Year 2022:

= (93,000-(176,000-126,000))/31,700 shares

= 43,000/31,700 = $ 1.36 per share

Year 2021:

= (68,000-(126,000-114,000))/30,700 shares

= 56,000/30,700 = $ 1.82 per share