Question

12-44 Financial Ratios

(Alternate is 12-46.) This problem uses the same data as problem 12-43, but it can be solved independently. Price-Break and Low-Cost are both discount store chains. Condensed income statements and balance sheets for the two companies are shown in Exhibit 12-13. Amounts are in thousands.

Additional information follows:

  Cash dividends per share: Price-Break, $2.10; Low-Cost, $1.50

Mprice per share: Price-Break, $50; Low-Cost, $35

Average shares outstanding for 20X9: Price-Break, 15 million; Low-Cost, 8 million

Compute the following ratios for both companies for 20X9: (a) current, (b) quick, (c) accounts receivable turnover, (d) inventory turnover, (e) total-debt-to-total-assets, (f) total-debt-to-total-equity, (g) ROE, (h) gross profit rate, (i) return on sales, (j) total asset turnover, (k) pretax return on assets, (l) EPS, (m) P-E, (n) dividend-yield, and (o) dividend-payout. Total debt includes all liabilities. Assume all sales are on credit.

Compare the liquidity, solvency, profitability, market price, and dividend ratios of Price-Break with those of Low-Cost

EXHIBIT 12-13 Financial Statements for Price-Break and Low-Cost

($ in thousands)

INCOME STATEMENTS

            Price-Break     Low-Cost

            Year Ended December 31, 20X9

Sales    $905,600         $491,750

Cost of sales    602,360           301,910

Gross profit     303,240           189,840

Operating expenses    184,130           147,160

Operating income       119,110           42,680

Other revenue (expense)        (21,930 )          6,270

Pretax income             97,180             48,950

Income tax expense    38,870             19,580

Net income     $ 58,310          $ 29,370

BALANCE SHEETS

            Price-Break     Low-Cost

            December 31 December 31

            20X9    20X8    20X9    20X8

Assets                                     

Current assets                                                

Cash    $ 9,100            $ 10,700          $ 8,200            $ 6,900

Marketable securities             8,300 8,300 4,100 3,800

Accounts receivable    36,700             37,100             21,300             20,500

Inventories      155,600           149,400           105,100           106,600

Prepaid expenses        17,100             16,900             8,800 8,400

Total current assets    226,800           222,400           147,500           146,200

Property and equipment, net 461,800           452,300           287,600           273,500

Other assets    14,700             13,900             28,600             27,100

Total assets     $703,300         $688,600         $463,700         $446,800

Liabilities and stockholders’ equity                                       

Liabilities                                            

Current liabilities (summarized)        $ 91,600          $ 93,700          $ 61,300          $ 58,800

Long-term debt           156,700           156,700           21,000             21,000

Total liabilities            248,300           250,400           82,300             79,800

Stockholders’ equity    455,000           438,200           381,400           367,000

Total liabilities and stockholders’ equity        $703,300         $688,600         $463,700         $446,800

Answer 1

computation of following Ratio - Gyer -620 De Yeas ended. Dicember 312019 Price break Low Cost at Current Ratio, C current Asset Current Liabilities. 2 226.800 / mere 300 91600 2:48 > 147500 / CD 61300 6 Bueil Ratio = Current Asset Inventorics . Currenthiabiltis (226800 - 155600791600 0.78 7 (1475300 - 105100)/6/300 0.69 C) Account Receivable Tumows - Net Sales Average Account Receivable 905 600 24.54 (36700+ 37100)/2 23.53 > 491780 (213007 20, 500 12 d) Inventory Turnover , - Cost of goods sold / Avesage inventory 3.95 602360 (155600+ 149400) 12 2.85 301 910 (105100+ 106600)/2 e Total Debt to Total Assets. - Total Debt / Total Assets -> (97600 + 156700) / 703300 -) / 61300 + 21000) / 463 700 0.18

Price Break. Low Cost 0.22 Total Debt to Total Equity = Total Debt / Total Equity (97600 + 136700) 7459010 (61300 + 21000) / 381400 8 ROE - Net Income / Shareholdless Equity 58 310 / 435.000 293701 381400 0.13 0.08 Gross Profit Rate Gross Profit/ sales 3032401 905 600 - 1898401 49 1750 0.33. 0.39 = → Return on sales Net Income I Sales S 8310/ 908600 293701 49 1750 0.06 0.06 > 1.30 Total Assets Turnoves Net Sales / Average Total Assets 905 600 (703,3007 68860072 49 1750 ( 46 3700 + 446800) / 2 9.08 Assets. Tan / Total Assets 2 pre tan Return on Net Profit before 97180 / 703 300 48 9500 / 463.700 0.14 0.11 1 FPS - Net Income No. Eg share = 58310 11s million = 29370 18 million. or 39 0.0039 10.0037 137

Price Broak Low-Cast 1.28 m PE Ratio. - Market Prill Pcs share / Earring Par share -> 30 / 0039 > 35 0.0637 n) Dividend Yield. Dividend pes share / 2.101 50 3 1.50/ 35 o Dividend Pay out Ratio 2 Dividend pes share EPS 2.10/5039 1.80l 37 "O Per Share 0.042 0.043 0.054 0.041