Question
Thor
Company
Gunnar
Company
Balance Sheet
Cash $ 36,000 $ 33,000
Accounts Receivable, Net 78,000 29,000
Inventory 156,000 32,000
Equipment, Net 772,000 194,000
Other Assets 197,000 69,400
Total Assets $ 1,239,000 $ 357,400
Current Liabilities $ 170,000 $ 20,000
Note Payable (long-term) (12% interest rate) 268,000 68,000
Common Stock (par $20) 673,000 253,000
Additional Paid-in Capital 71,000 5,800
Retained Earnings 57,000 10,600
Total Liabilities and Stockholders’ Equity $ 1,239,000 $ 357,400
Income Statement
Sales Revenue $ 1,123,000 $ 339,000
Cost of Goods Sold 673,000 181,000
Other Expenses 337,000 115,000
Net Income $ 113,000 $ 43,000
Other Data
Per share price at end of year $ 12.00 $ 30.00
Selected Data from Previous Year
Accounts Receivable, Net $ 66,800 $ 28,200
Inventory 134,000 46,600
Equipment, Net 772,000 194,000
Note Payable (long-term) (12% interest rate) 268,000 68,000
Total Stockholders’ Equity 801,000 269,400


These two companies are in the same business and state but different cities. Each company has been in operation for about 10 years. Both companies received an unqualified audit opinion on the financial statements. Thor Company wants to borrow $106,000 and Gunnar Company is asking for $37,000. The loans will be for a two-year period. Neither company issued stock in the current year. Assume the end-of-year total assets and net equipment balances approximate the year’s average and all sales are on account.

Required -

Thor Company Gunnar Company 12. 10.06% 40.07 % 12.68% 46.61% % $ 3.36 3.57 Ratio Tests of Profitability: 1. Net Profit Margin

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Answer #1
Thor Company Gunnar Company
net profit margin net income / sales * 100
net income 113000 43000
sales 1123000 339000
net profit margin 10.06% 12.68%
gross profit margin gross profit / sales * 100
sales 1123000 339000
cost of goods sold 673000 181000
gross profit 450000 158000
gross profit margin 40.07% 46.61%
fixed assets turnover net sales / average fixed assets
sales 1123000 339000
equipment closing 772000 194000
fixed assets turnover 1.45 1.75
return on equity net income / shareholders equity
net income 113000 43000
shareholders equity 801000 269400
return on equity 14.11% 15.96%
earnings per share net income / shares outstanding
net income 113000 43000
shares outstanding 33650 12650
earnings per share 3.36 3.40
price/earnings ratio share price / earnings per share
share price 12 30
earnings per share 3.36 3.4
price/earnings ratio 3.57 8.82
receivable turnover Sales / average receivable
sales 1123000 339000
closing receivables 78000 29000
opening receivables 66800 28200
average receivables 72400 28600
receivable turnover 15.51 11.85
days to collect 365 days / receivable turnover
receivable turnover 15.51 11.85
days to collect 23.53 30.80
inventory turnover cost of goods sold / average inventory
cost of goods sold 673000 181000
closing inventory 156000 32000
opening inventory 134000 46600
average inventory 145000 39300
inventory turnover 4.64 4.61
days to sell 365 days / inventory turnover
inventory turnover 4.64 4.61
days to sell 78.66 79.18
current ratio current assets / current liabilities
cash 36000 33000
accounts receivable 78000 29000
inventory 156000 32000
total current assets 270000 94000
current liabilities 170000 20000
current ratio 1.59 4.70
Debt-to-assets ratio total liabilities / total assets
current liabilities 170000 20000
note payable 268000 68000
total liabilities 438000 88000
total assets 1239000 357400
Debt-to-assets ratio 0.35 0.25
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