Question

The following information is available for Bakers Corporation.
		2018		2017
Current liabilities		$               88,000		$                   60,800
Total assets		400,000		341,000
Currrent liabilities		40,000		38,000
Total liabilities		120,000		150,000
Net income		100,000		50,000
Net cash provided by operating activities		110,000		70,000
Preferred dividends		10,000		10,000
Common dividends		5,000		2,500
Expenditures on property, plant, and equipment		45,000		20,000
Shares outstanding beginning of year		60,000		40,000
Shares outstanding end of year		120,000		60,000
Computethe current ratio, debt to asets ratio, free cash flow, and earnings per share for 2018 and 2017.
		2018		2017
Earnings per share
Debt to assets ratio
Free cash flow
Earnings per share

Answer 1

Answer of Part a:

For 2018:

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $88,000 / $40,000
Current Ratio = 2.2

For 2017:

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $60,800 / $38,000
Current Ratio = 1.6

Answer of Part b:

For 2018:

Debt to Assets Ratio = Total Liabilities / Total Assets
Debt to Assets Ratio = $120,000 / $400,000
Debt to Assets Ratio = 0.3

For 2017:

Debt to Assets Ratio = Total Liabilities / Total Assets
Debt to Assets Ratio = $150,000 / $341,000
Debt to Assets Ratio = 0.44

Answer of Part c:

For 2018:

Free Cash Flows = Net Cash Provided by Operating Activities – Preferred Dividend – Common Dividends – Expenditures on Property, Plant and Equipment
Free Cash Flows = $110,000 - $10,000 - $5,000 - $45,000
Free Cash Flows = $50,000

For 2017:

Free Cash Flows = Net Cash Provided by Operating Activities – Preferred Dividend – Common Dividends – Expenditures on Property, Plant and Equipment
Free Cash Flows = $70,000 - $10,000 - $2,500 - $20,000
Free Cash Flows = $37,500

Answer of Part d:

For 2018:

Average Shares Outstanding = (Beginning Shares Outstanding + Ending Shares Outstanding) /2
Average Shares Outstanding = ($60,000 + $120,000) /2
Average Shares Outstanding = 90,000

Earnings Per Share = (Net Income – Preferred Dividend) / Shares Outstanding
Earnings Per Share = ($100,000 - $10,000) / 90,000
Earnings Per Share = $90,000 / 90,000
Earnings Per Share = 1

For 2017:

Average Shares Outstanding = (Beginning Shares Outstanding + Ending Shares Outstanding) /2
Average Shares Outstanding = ($40,000 + $60,000) /2
Average Shares Outstanding = 50,000

Earnings Per Share = (Net Income – Preferred Dividend) / Shares Outstanding
Earnings Per Share = ($50,000 - $10,000) / 50,000
Earnings Per Share = $40,000 / 90,000
Earnings Per Share = 0.44