Question

P13-9A

Ratios Compared with Industry Averages Packard Plasties, Inc., manufactures various plastic and synthetic products. Financial statement data for the firm follow 2016 of Dollars, except Earnings per Share) $825,000 540,000 50,500 15,000 4.25 Dividends Packard Plastics, Inc. Balance Sheets of Dollars) Dec. 31, 2016 Dec. 31, 2015 Assets $ 2,700 60,900 140,000 203,600 ....$ 4,100 66,900 148,000 . . . Inventory 219,000 215,000 13,900 194,000 3,900 Plant assets (net) . . . . $447 900 $401500 Liabilities and Stockholders' Equity $ 31,000 25,000 . 27,600 25,100 83,700 150,000 233,700 23,000 24,800 72,800 150,000 222,800 125,000 53,700 1096 Bonds payable. Total Liabilities 178,700 214,200 $447,900 Total Liabilities and Stockholders Equity $401,500 Required a. Using the given data, calculate items 1 through 8 below for 2016. Compare the performance of Packard Plastics, Inc, with the following industry averages and comment on its operations. Chapter 13 Analysis and Interpretation of Financial Statements Median Ratios for Manufacturers of Plastic and Synthetic Products Quick ratio Current ratio . 1.2 1.9 7.9 times 7.8 times 0.95 32.7 percent 2. Debt-to-equity ratio . 6. Gross profit percentag 7. Return on sales . Return on assets . 3.5 percent .. 6.3 percent b. Calculate the dividends paid per share of common stock. What was the dividend payout ratio? c. If the most recent price per share of common stock is $50.25, what is the price-earnings ratio? The dividend yield?

Answer 1

1. QUICK RATIO = QUICK ASSETS/CURRENT LIABILITIES

QUICK ASSETS= CASH + ACCOUNT RECEIVABLE= 4100+66900=71000

CURRENT LIABILITIES=83700

71000/83700 = 0.85

       (Industry average is 1.2, company’s ratio is below average industry, and it shows lesser capacity than industry to pay its current liabilities without needing to sell stock or additional source of finance)

2. CURRENT RATIO= CURRENT ASSET/ CURRENT LIABILITIES= 219000/83700=2.62

(Industry average is 1.9, company’s ratio is above average industry, and it shows better capacity to pay current liabilities)

3. ACCOUNT RECEIVABLE TURNOVER = NET CREDIT SALES/ AVERAGE ACCOUNT RECEIVABLE

AVERAGE ACCOUNT RECEIVABLE= 66900+60900/2=63900

NET CREDIT SALES=825000(ASSUMED ALL SALES ON CREDIT)

825000/63900=12.91 TIMES

(Industry average is 7.9 times, Company is above average industry, company’s account receivable is efficient)

4. INVENTORY TURNOVER= SALES/ AVERAGE INVENTORY

AVERAGE INVENTORY = 148000+140000/2=144000

825000/144000=5.73 TIMES

(Industry average is 7.8 times, Company is below average industry, it implies weak sales and possibility of excess inventory)

5. DEBT TO EQUITY RATIO= TOTAL LIABILITIES/ TOTAL SHARE HOLDERS EQUITY =233700/214200=1.09

(Industry average is 0.95 times, Company is above average industry,)

6. GROSS PROFIT PERCENTAGE= GROSS PROFIT/ NET SALES=

GROSS PROFIT = SALES -COGS =825000-540000=285000

285000/825000=34.55%

(Industry average is 32.7% times, Company is above average industry, it shows company doing better performance than industry)

7. RETURN ON SALES =OPERATING PROFIT/SALES

=50500/825000=6.12%

(Industry average is 3.5% times, Company is above average industry, it shows company doing better performance than industry)

8. RETURN ON ASSETS= NET INCOME/ TOTAL ASSETS=50500/447900=11.27%

(Industry average is 6.3% times, Company is above average industry, it shows company doing better performance than industry)

9. DIVIDEND PER SHARE=

TOTAL DIVIDEND/TOTAL SHARE OUTSTANDING

15000000/12500000= 1.2

DIVIDEND PAYOUT RATIO=

DIVIDEND PAID/ NET INCOME =15000/50500=2.97

PE RATIO = MARKET VALUE PER SHARE/ E P S= 50.25/4.25=11.82