Question

Problem 2 (88 points) You have just been hired as a financial analyst for Tobia Company. Your boss has asked you to perform a comprehensive analysis of the company's financial statements, including comparing Tobia's performance to its major competitors. The company has provided the following financial data: Balance Sheet December 31, Year 2 and Year 1 Assets Year 2 Year 1 Current assets: S 201,000 236,000 158,000 96,000 691,000 842,000 $ 1,533,000 110,000 200,000 190,000 90,000 Cash Accounts receivable, net Inventory Prepaid expenses 590,000 920,000 Total current assets Plant and equipment, net S 1,510,000 Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities Notes payable, short term Total current liabilities Bonds payable Total liabilities 150,000 40,000 90,000 280,000 170,000 450,000 173,000 36,000 88,000 297,000 170,000 467,000 Stockholders' equity: Common stock, S3 par value Additional paid-in capital Retained earnings Total stockholders' equity Total liabilities & stockholders' equity 210,000 60,000 796,000 210,000 60,000 790,000 1,066,000 S 1,533,000 1,060,000 $ 1,510,000 Income Statement For the Year Ended December 31, Year 2 1,410,000 850,000 Sales (all on account) Cost of goods sold Gross margin Operating expenses Net operating income Interest expense 560,000 525,077 34,923 16,000 18,923 6,623 12,300 Net income before taxes Income taxes (35%) Net income

Answer 1

Interest Coverage ratio = EBIT Interest Times Interest Earned/Interest Coverage ratio EBIT/interest 34,923 16,000 2.18 Debt to equity ratio = Total Liabilities Total Stockholders Equity Debt to equity ratio Total Liabilities/Total Equity 467,000 1,066,000 43.8% Gross Margin percentage Gross Margin Revenue/Sales Gross Margin percentage (Total revenue - Cost of goods Sold)/ Total Revenue 560,000 1,410,000 39.7% Return on Total asset= EBIT Total Assets Return on Total asset EBIT/Total Assets 34,923 1,533,000 Return on Equity = Net Income Equity Return on Equity Net Income/Equity 12,300 1,066,000 1.2%

в а 12,300 210,000 Earnings Common Stock Par Value No. of shares [ Common Stock/ Par Value] Earnings per Share [ Earnings/No. of Shares] 70,000 0.18 Market Price per Share Total Dividend Dividend per share [Total dividend/No. of Shares] Dividend Yield ratio [ Divdend per share/Market price] 1.78 6,300 0.09 5.1% Dividend per share [Total dividend/No. of Shares] Earnings per Share [ Earnings/No. of Shares] Dividend Payout ratio [ Divdend per share/Market price] 0.09 0.18 51.2% Market Price per Share EPS Price Earnings ratio [ Divdend per share/Market price] 1.78 0.18 10.13 Industry average is 10 whereas Tobia is at a Price earnings ratio of 10.13 and hence is slightly overpriced for the investors

Current Assets Current liabilities Workings Capital = Current Assets - Current Liabilities 691,000 297,000 394,000 Current ratio [ Current assets/Current liabilities] 2.33 Acid test Ratio Inventory Prepaid expenses Current Assets Liquid Assets Current assets - inventory-prepaid) Acid test Ratio [ Liquid Assets/ Current Liabilities] 158,000 96,000 691,000 437,000 1.47