Question

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

JERGAN CORPORATION Balance Sheets December 31
		2022		2021		2020
Cash		$ 30,000		$ 20,000		$ 18,000
Accounts receivable (net)		50,000		45,000		48,000
Other current assets		90,000		95,000		64,000
Investments		55,000		70,000		45,000
Plant and equipment (net)		500,000		370,000		358,000
		$725,000		$600,000		$533,000
Current liabilities		$ 85,000		$ 80,000		$ 70,000
Long-term debt		145,000		85,000		50,000
Common stock, $10 par		320,000		310,000		300,000
Retained earnings		175,000		125,000		113,000
		$725,000		$600,000		$533,000

JERGAN CORPORATION Income Statements For the Years Ended December 31
		2022		2021
Sales revenue		$740,000		$600,000
Less: Sales returns and allowances		40,000		30,000
Net sales		700,000		570,000
Cost of goods sold		425,000		350,000
Gross profit		275,000		220,000
Operating expenses (including income taxes)		180,000		150,000
Net income		$ 95,000		$ 70,000

Additional information:

1.		The market price of Jergan’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.

Discuss briefly the improvement or lack thereof in the financial position and operating results from 2021 to 2022 of Jergan Corporation using the following ratios, profit margin, gross profit rate, asset turnover, earnings per share, price-earnings ratio, payout ratio and debt to assets ratio.

Answer 1

JERGAN CORPORATION ($)

			2022	2021
a	Profit margin	Net profit/ Net sales	95,000/700,000 = 13.57%	70,000/540,000 = 12.96%
b	Gross profit margin	Gross profit/ Net sales	275,000/700,000 = 39.29%	220,000/570,000 = 38.60%
c	Assets turnover	Net sales/ Average assets	700,000/(725,000+600,000)/2 700,000/662,500 = 1.06 times	570,000/(600,000+533,000)/2 570,000/566,500 = 1.01 times
d	Earnings per share	Net income/ Weighted average common shareholders	95,000/(32,000+31,000)/2 95,000/31,500 = $ 3.02	70,000/(31,000+30,000)/2 70,000/30,500 = $ 2.30
e	Price earnings ratio	Market price/ Earnings per share	$ 8.50/ $ 3.02 = 2.81 times	$ 7.50/ $ 2.30 = 3.26 times
f	Payout ratio	Dividend per share/ Earnings per share	$ 1.43/ $ 3.02 = 47.35%	$ 1.90/ $ 2.30 = 82.61%
g	Debt to assets	Total Debt/ Assets	(145,000+85,000)/725,000 = 31.72%	(85,000+80,000)/600,000 = 27.5%
*	Dividend per share	(Opening retained earnings + Net profit - Closing retained earnings)/Weighted average common shareholders	(125,000+95,000-175,000)/31,500 = 45,000/31,500 = $ 1.43	(113,000+70,000-125,000)/30,500 = 58,000/30,500 = $ 1.90

By looking at Profit margin, gross profit ratio, assets turnover ratio and earnings per share from 2021 to 2022, are in increasing trend which clearly indicates that the entity is operating in growing stage by Increasing the debt portion. And also market price of the entity's share is in Increasing trend.