Pinnacle Plus declared and paid a cash dividend of $9,100 in the current year. Its comparative...
Pinnacle Plus declared and paid a cash dividend of $9,100 in the current year. Its comparative financial statements, prepared at December 31, reported the following summarized information:
| Current Year | Previous Year | ||||||
| Income Statement | |||||||
| Sales Revenue | $ | 235,000 | $ | 199,000 | |||
| Cost of Goods Sold | 102,000 | 98,000 | |||||
| Gross Profit | 133,000 | 101,000 | |||||
| Operating Expenses | 61,000 | 53,000 | |||||
| Interest Expense | 6,500 | 6,500 | |||||
| Income before Income Tax Expense | 65,500 | 41,500 | |||||
| Income Tax Expense (30%) | 19,650 | 12,450 | |||||
| Net Income | $ | 45,850 | $ | 29,050 | |||
| Balance Sheet | |||||||
| Cash | $ | 102,125 | $ | 13,000 | |||
| Accounts Receivable, Net | 42,000 | 37,000 | |||||
| Inventory | 50,000 | 63,000 | |||||
| Property and Equipment, Net | 120,000 | 130,000 | |||||
| Total Assets | $ | 314,125 | $ | 243,000 | |||
| Accounts Payable | $ | 67,000 | $ | 32,500 | |||
| Income Tax Payable | 1,625 | 1,750 | |||||
| Note Payable (long-term) | 65,000 | 65,000 | |||||
| Total Liabilities | 133,625 | 99,250 | |||||
| Common Stock (par $10) | 105,000 | 105,000 | |||||
| Retained Earnings | 75,500 | 38,750 | |||||
| Total Liabilities and Stockholders’ Equity | $ | 314,125 | $ | 243,000 | |||
Required:
- Compute the gross profit percentage in the current and previous years. Are the current year results better, or worse, than those for the previous year?
- Compute the net profit margin for the current and previous years. Are the current year results better, or worse, than those for the previous year?
- Compute the earnings per share for the current and previous years. Are the current year results better, or worse, than those for the previous year?
- Stockholders’ equity totaled $125,000 at the beginning of the previous year. Compute the return on equity (ROE) ratios for the current and previous years. Are the current year results better, or worse, than those for the previous year?
- Net property and equipment totaled $135,000 at the beginning of the previous year. Compute the fixed asset turnover ratios for the current and previous years. Are the current year results better, or worse, than those for the previous year?
- Compute the debt-to-assets ratios for the current and previous years. Is debt providing financing for a larger or smaller proportion of the company’s asset growth?
- Compute the times interest earned ratios for the current and previous years. Are the current year results better, or worse, than those for the previous year?
- After Pinnacle Plus released its current year’s financial statements, the company’s stock was trading at $43. After the release of its previous year’s financial statements, the company’s stock price was $40 per share. Compute the P/E ratios for both years. Does it appear that investors have become more (or less) optimistic about Pinnacle’s future success?
Homework Answers
Answer:
1.Gross profit percentage = Gross Profit / Sales
Current Year = 133000 / 235000 = 56.60% ; Previous Year = 101000/199000 = 50.75%
Current Year results are better than previous year.
2.Net Profit Margin = Net Income / Sales
Current Year = 45850 / 235000 = 19.51% ; Previous Year = 29050 /199000 = 14.60%
Current Year results are better than previous year.
3.Earning per share = Net Income / Outstanding shares
Current Year = 45850 / 10500 = 4.37 ; Previous Year = 29050 / 10500 = 2.77
Current Year results are better than previous year.
4.ROE = Net Income / Avg. Stockholders Equity
Current Year = 45850 / (105000 + 105000 + 75500 + 38750 ) / 2 = 45850 / 162125 = 0.28
Previous Year = 29050 / (105000 + 38750 + 125000 ) / 2 = 29050 / 134375 = 0.216
Current Year results are better than previous year.
5.Fixed Asset Turnover ratio = Sales Revenue / Avg.Fixed Assets
Current Year = 235000 / (120000 + 130000 ) / 2 = 235000 / 125000 = 1.88
Previous Year = 199000 / (130000 + 135000 ) / 2 = 199000 / 132500 = 1.50
Current Year results are better than previous year.
6.Debt to Assets Ratio = Total Liabilities / Total Assets
Current Year = 133625 / 314125 = 0.425
Previous Year = 99250 / 243000 = 0.408
Current Year results are better than previous year.
7.Times Interest earned = Operating Income / Interest Expense
Current Year = (133000 - 61000 ) / 6500 = 11.08
Previous Year = (101000 - 53000 ) / 6500 = 7.38
Current Year results are better than previous year.
8.P/E Ratio = Market Price / EPS
Current Year = 43 / 4.37 = 9.84 ; Previous Year = 40 / 2.77 = 14.44
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Pinnacle Plus declared and paid a cash dividend of $9,100 in the
current year. Its comparative...
Pinnacle Plus declared and paid a cash dividend of $8,100 in the current year. Its comparative financial statements, prepared at December 31, reported the following summarized information:
Pinnacle Plus declared and paid a cash dividend of $8,100 in the current year. Its comparative financial statements, prepared at December 31, reported the following summarized information: Current YearPrevious YearIncome StatementSales Revenue$185,000$159,000Cost of Goods Sold82,00078,000Gross Profit103,00081,000Operating Expenses51,00045,000Interest Expense5,5005,500Income before Income Tax Expense46,50030,500Income Tax Expense (30%)13,9509,150Net Income$32,550$21,350Balance SheetCash$89,075$23,000Accounts Receivable, Net32,00027,000Inventory40,00053,000Property and Equipment, Net110,000120,000Total Assets$271,075$223,000Accounts Payable$57,000$33,500Income Tax Payable1,3751,250Note Payable (long-term)55,00055,000Total Liabilities113,37589,750Common Stock (par $10)99,00099,000Retained Earnings58,70034,250Total Liabilities and Stockholders’ Equity$271,075$223,000 Required:1. Compute the gross profit percentage in the current and previous years. Are the current year...
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