Question

The financial statements of Hainz Company appear below: HAINZ COMPANY Comparative Balance Sheet December 31 Assets 2019 Cash $20,000 Short-term investments 20,000 Accounts receivable (net) 40,000 Inventory 60,000 Property, plant and equipment (net) 260,000 Total assets $400,000 Liabilities and stockholders' equity Accounts payable $20,000 Short-term notes payable 40,000 Bonds payable 80,000 Common stock 150,000 Retained earnings 110,000 Total liabilities and stockholders' equity $400,000 2018 $40,000 60,000 30,000 70,000 300,000 $500,000 $30,000 90,000 160,000 150,000 70,000 $500,000 HAINZ COMPANY Income Statement For the Year Ended December 31, 2019 Net sales $400,000 Cost of goods sold 250,000 Gross profit 150,000 Expenses Operating expenses $42,000 Interest expense 18,000 Total expenses 60,000 Income before income taxes 90,000 Income tax expense 27,000 Net income $63,000 Additional information: a. Cash dividends of $23,000 were declared and paid in 2019. b. Weighted-average number of shares of common stock outstanding during 2019 was 30,000 shares. c. Market value of common stock on December 31, 2019, was $21 per share. Using the financial statements and additional information, compute the following ratios for Hainz Company for 2019. (Use 365 days for calculation. Round answers to 1 decimal place, e.g. 52.7.) 1. Current ratio 2. Return on common stockholders' equity 3. Price-earnings ratio times 4. Acid-test ratio 5. Accounts receivable turnover times times 6. 7. Times interest earned Profit margin 8. Days in inventory 9. Payout ratio 10. Return on assets

Answer 1

1	Current ratio	Current assets / current liabilities	140,000 / 60,000	2.3	: 1
2	Return on common stockholders' equity	Net Income / Average Equity	63,000 / (260,000 + 220,000)	26.3%
3	Price earnings ratio	Market price per share / Earning per share	21 / 2.1	10	times
4	Acid test ratio	Current assets - inventory / Current liabilities	80,000 / 60,000	1.3	: 1
5	Accounts receivable turnover	Net sales / Average receivables	400,000 / (40,000 + 30,000) / 2	11.4	times
6	Times interest earned	Income before tax + Interest expense / Interest expense	108,000 / 18,000	6	times
7	Profit margin	Net Income / Net sales	63,000 / 400,000	15.8%
8	Days in inventory	1 / Inventory turnover X 365	1 / (COGS / Average inventory) X 365	94.9	days
9	Payout ratio	Cash dividend / Net Income	23,000 / 63,000	36.5%
10	Return on assets	Net Income / Average total assets	63,000 / (400,000 + 500,000) / 2	14.0%