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The following financial statements apply to Karl Company: 2019 Revenues Net sales Other revenues $420,000 350,000 10,000 360,000 16,000 436,000 Total revenues Expenses Cost of goods sold Selling expenses General and administrative expenses Interest expense Income tax expense 252,000 42,000 22,000 6,000 42,000 364,00e 206,000 38,000 20,000 6,000 36,000 306,000 Total expenses Net income Assets Current assets $ 72,000 $ 54,000 $ 8,000 16,000 Marketable securities Accounts receivable Inventories Prepaid expenses 70,000 200,000 6,000 286,000 210,000 40,000 $536,000 64,000 192,000 4,000 278,000 210,000 Total current assets Plant and equipment (net) Intangibles Total assets Liabilities and Stockholders' Equity Liabilities 488,000 Current liabilities $ 80,000 $108,000 30,000 138,000 134,000 272,000 Accounts payable Other 34,00030 Total current liabilities Bonds payable Total 1iabilities 114,000 132,000 246,000 Stockholders' equity Common stock (100,000 shares) Retained earnings 230,000 60,000 230,000 14,000 290,000 216,000 $536,000 488,000 TotalRequired Calculate the following ratios for 2018 and 2019. Since 2017 numbers are not presented, do not use averages when cal stockholders' equity Total liabilities and stockholders equity



d. Return on average equity. e. Net margin. 9.5 Problem 9-23 Ratio analysis The following financial statements apply to Karl
Financial Statement Analysis 2018 2019 Assets Current assets $ 16,000 2.000 $ 8.000 2.000 70.000 200.000 6.000 286,000 210.00
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Answer #1

Solution:

a.) Net Margin

Year 2019 2018
Net income $72,000 $54,000
Divide by reveues $436,000 $360,000
Net Margin 0.1651 0.15
Net Margin (%) 16.51% 15%

b.) Return on investment:

ROI = Net Income/ Average investment

Net income $54,000
Plant and equipment (net) $210,000
2018 Return on investment 0.2571
Return on investment 25.72%

In 2019, the investment will be averaged:

Plant and equipment (net) 2018 $210,000
Plant and equipment (net) 2019 $210,000
Total $420,000
Average investment $210,000($420,000/2)
Net income $72,000
Plant and equipment (net) $210,000
2019 Return on investment 0.3428
Return on investment 34.28%

c.) Return on Equity:

ROE = Net Income / Average Equity

Net income $54,000
Total Equity $216,000
Return on Equity (2018) 0.25
Return on Equity 25%

In 2019, Equity will be averaged:

2018 stockholders'equity $216,000
2019 stockholders'equity $290,000
Total $506,000
Average Equity $253,000($506,000/2)
Net income $72,000
Total Equity $253,000
Return on Equity(2019) 0.2846
Return on Equity (2019) 28.46%

d.) Earnings per share:

Year 2019 2018
Net income $72,000 $54,000
Average comments share 100,000 100,000
Earnings per share 0.72 0.54

e.) Price- earnings ratio:

Price earnings ratio = Market price / earnings per share

Year 2019 2018
Market price $9.54 $11.88
Earnings per share 0.72 0.54
Price earnings ratio 13.25 22.0

f.) Book value per share of common stock:

Book value per share of common stock = Common stockholders'equity / No.of outstanding common shares

Year 2019 2018
Total stockholders'equity 290,000 216,000
Outstanding common shares 100,000 100,000
Book value per share 2.90 2.16

g.) Times interest earned.

Times interest earned = Earnings before Interest and taxes / Interest Expenses

Year 2019 2018
Total revenues $436,000 $360,000
Less: cost of goods sold -$252,000 -$206,000
Less: selling expenses -$42,000 -$38,000
Less: general and administrative expenses -$22,000 -$20,000
Earnings before Interest and taxes $120,000 $96,000
Interest expense $6,000 $6,000
Times interest earned 20 16
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