Question

Question 32

Balance sheet

Cash                                                             $41,000          $21,000

Account receivable (net)                            38,000             31,000

Inventory                                                       99,000            40,000

Property & equipment                              140,000          401,000

Other assets                                                  84,000           305,000

Total assets                                                $402,000        $798,000

Current liabilities                                       $ 99,000        $49,000

Long term debt (interest rate: 10%)            65,000         60,000

Capital stock ($10 per value)                    148,000         512,000

Additional paid in capital                             29,000        106,000

Retainined earning                                        61,000        71,000

Total liabilities and stockholders equity $402,000      $798,000

Income Statement                                        

Sales revenue    (1/3 on credit)                    $447,000        $802,000

Cost of goods sold                                           (241,000       (400,000)

Operating expense                                         (161,000)     (311,000)

Net income                                                       $45,000          $91,000  

Other data:

Per-share stock price at end of current year $22                $15

Average income tax rate                                      30%             30%

Dividends declared and paid in current year $33,000        $148,000

Both companies are in the fish catching and manufacturing business. Both have been in business approximately 10 years, and each has had steady growth. The management of each has a different viewpoint in many respects. Blue water is more conservative, and its president has said, “We avoid what we consider to be undue risk” Neither company is publicly held.

Requirement

1. Complete a schedule that reflect a ration analysis of each company (Round your intermediate calculation and final answer 2 decimal place. Enter percentage answers rounded 2 decimal place.

Ration                                                 Blue Water Company         Prime Fish Company

Profitability ratio

1. Return on equity                      18.91                                       13.21             
2. Return on assets                      11.91                                       11.40
3. Gross profit percentage            ?                                               ?
4. Net Profit Margins                   10.07                                       11.35
5. Earnings per share                     3.04                                         1.78
6. Quality Of Income                        ?                                              ?

Quality of income

Turnover ratio

Solvency ratios

Times Interest Earned Ratio              ?                                      ?

Cash Coverage Ratio                            ?                                            ?

Answer 1

gross profit ratio	( gross profit / sales ) * 100
gross profit	sales - cost of goods sold
	Blue Water Company	Prime Fish Company
sales	447000	802000
cost of goods sold	-241000	-400000
gross profit	206000	402000
ratio	46.09%	50.12%

times interest earned ratio	earnings before interest and tax / interest expenses
	Blue Water Company	Prime Fish Company
sales	447000	802000
cost of goods sold	-241000	-400000
gross profit	206000	402000
operating expenses	-161000	-311000
operating profit/EBIT	45000	91000
interest expense	10% of long term debt
long-term debt	65000	60000
interest rate	10%	10%
interest expense	6500	6000
ratio	45000/6500	91000/6000
	6.92	15.17

cash coverage ratio	cash / current liabilities
	Blue Water Company	Prime Fish Company
cash	41000	21000
current liabilities	99000	49000
ratio	0.41	0.43