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 2. Gross Profit Percentage 3. Fixed Asset Turnover Return on Equity 5. Earnings per Share 6. Price/Earnings Ratio Tests of Liquidity: 7. Receivables Turnover Days to Collect 8. Inventory Turnover Days to Sell 9. Current Ratio Tests of Solvency: 10. Debt-to-Assets Ratio days days days days

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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