Question

P18-3 Perform ratio analysis, and evaluate financial position and operating results Consolidated balance sheet and income statement data for Landwehr Corporation appear below. Cash Accounts receivable (net) Other current assets Investments Plant and equipment (net) LANDWEHR CORPORATION Balance Sheets December 31 2018 $25,000 50,000 90,000 75,000 400,000 $640,000 $75,000 80,000 340,000 145,000 $640,000 2017 $20,000 45,000 95.000 70,000 370,000 $600,000 $80,000 85,000 310,000 125,000 $600,000 2016 $18,000 48,000 64,000 45,000 358,000 $533,000 $70,000 50.000 300,000 113,000 $533,000 Current liabilities Long-term debt Common stock, $10 par Retained earnings LANDWEHR CORPORATION Income Statement For the Years Ended December 31 2017 Sales revenue Less: Sales returns and allowances Net sales Cost of goods sold Gross Profit Operating expenses (including income tax) Net income 2018 $740,000 40,000 700.000 420,000 280,000 235,000 $45.000 $700,000 50,000 650,000 400,000 250,000 220.000 $30.000 Additional information: 1. The market price of Landwehr's common stock was $4.00, S5.00, and $8.00 for 2016, 2017, and 2018 respectively 2. All dividends were paid in cash.

Answer 1

Profit Margin	(Net Income/Net Sales)*100
	2017	2018
Net Income	30,000	45,000
Net Sales	6,50,000	7,00,000
Profit Margin	4.62	6.43
Profit margin improved. Shows improvement in return.
Asset Turnover	Net Sales/Average Total Assets
2016 Total Assets	5,33,000
2017 Total Assets	6,00,000	6,00,000
2018 Total Assets		6,40,000
Average Total Assets	5,66,500	6,20,000
Net Sales	6,50,000	7,00,000
Asset Turnover	114.7%	112.9%
Asset turnover reduced, means slightly lower turnover.
Earnings Per Share	Net Income/Common Shares Outstanding
Net Income	30,000	45,000
Common Shares Outstanding	31,000	32,000
Earnings Per Share	0.97	1.41
EPS increased, means company is more profitable.
Price Earnings Ratio	MV Per Share/EPS
MV Per Share	8	5
Earnings Per Share	0.97	1.41
Price Earnings Ratio	8.3	3.6
Price Earnings ratio reduced, means market is not bullish/lower priced shares.
Payout Ratio	Cash Dividends/Net Income
Cash Dividends	18,000	25,000
Net Income	30,000	45,000
Payout Ratio	60.0%	55.6%
Payout ratio reduced. Shows improvement in growth of the company.
Debt to Asset Ratio	Debt/Assets
Debt	85,000	80,000
Assets	6,00,000	6,40,000
Debt to Asset Ratio	14.2%	12.5%
Debt Ratio reduced. Improvement.

Answer 2

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