Question

Please complete entire PA13-2 with ratios correctly. Use the data given in PA13-1 for pinnacle plus.

est percentage? LO 13-4, 1 PA13-2 Analyzing Comparative Financial Statements Using Selected Ratios Use the data given in PA13-1 for Pinnacle Plus. Required: 1. Compute the gross profit percentage in the current and previous years. Round the percent- ages to one decimal place. Are the current year results better, or worse, than those for the previous year? 2. Compute the net profit margin for the current and previous years. Round the percentages to one decimal place. Are the current year results better, or worse, than those for the previous year? 3. 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? 4. Stockholders' equity totaled $100,000 at the beginning of the previous year. Compute the return on equity (ROE) ratios for the current and previous years. Express the ROE as percent- ages rounded to one decimal place. Are the current year results better, or worse, than those for the previous year? 5. Net property and equipment totaled $110,000 at the beginning of the previous year. Com- pute the fixed asset turnover ratios for the current and previous years. Round the ratios to two decimal places. Are the current year results better, or worse, than those for the previ- ous year? 6. Compute the debt-to-assets ratios for the current and previous years. Round the ratios to two decimal places. Is debt providing financing for a larger or smaller proportion of the company's asset growth? 7. Compute the times interest earned ratios for the current and previous years. Round the ratios to one decimal place. Are the current year results better, or worse, than those for the previous year? 8. After Pinnacle Plus released its current year's financial statements, the company's stock was trading at $18. After the release of its previous year's financial statements, the company's stock price was $15 per share. Compute the P/E ratios for both years, rounded to one decimal place. Does it appear that investors have become more (or less) optimistic about Pinnacle's future success? means thal connect ACCOUNTING GROUP A PROBLEMS PA13-1 Analyzing Financial Statements Using Horizontal Analyses The comparative financial statements prepared at December 31 for Pinnacle Plus showed the fol- lowing summarized data: -5 Increase (Decrease) in Current (versus Previous) Amount Percentage Previous Current Income Statement Sales Revenue Cost of Goods Sold $99,000 $110,000 52,000 48,000 51,000 33,000 58,000 36,000 4,000 18,000 5,400 $12,600 Gross Profit Operating Expenses Interest Expense 4,000 14,000 Income before Income Tax Expense Income Tax Expense (30 %) 4,200 $9,800 Net Income Balance Sheet $ 38,000 12,000 38,000 105,000 $193,000 Cash Accounts Receivable, Net Inventory Property and Equipment, Net 69,500 17,000 25,000 95,000 $206,500 Total Assets Accounts Payable Income Tax Payable Note Payable (long-term) Total Liabilities Common Stock (par $10) Retained Earnings Total Liabilities and Stockholders' Equity $42.000 1,000 40,000 83,000 90,000 33,500 $ 35,000 500 40,000 75,500 90,000 27,500 $193,000 $206,500 During the current year, cash dividends amounting to $6,600 were declared and paid.

Answer 1

Pinnacle Plus Horizontal Analysis Increase/(Decrease) Current Previous Amount Percentage Income Statement Sales Revenue 11.11% 110000 99000 11000 Cost of goods sold 48000 8.33% 52000 4000 Gross Profit 51000 13.73% 58000 7000 9.09% Operating Expense 36000 33000 3000 Interest Expense 0.00% 4000 4000 0 Income before come Tax Expense .57 18000 14000 4000 Income Tax Expense (30%) 28.57% 5400 4200 1200 12600 2800 28.57% Net Income 9800 Balance sheet Cash 31500 82.89% 69500 38000 Accounts Receivable 41.67% 17000 12000 5000 -34.21% Inventory 25000 38000 -13000 Property and Equipment -9.52% 95000 105000 -10000 Total Assets 193000 6.99% 206500 13500 Accounts Payable Income Tax Payable Note Payable (Long Term) 20.00% 42000 35000 7000 100.00% 1000 500 500 0.00% 40000 40000 0 Total Liabilities 9.93% 83000 75500 7500 Common Stock (par $10) 90000 0.00% 90000 0 Retained Earnings 21.82% 33500 27500 6000 Total Liabilities and Stockholders Equity 206500 193000 6.99% 13500

1.Gross Profit Percentage Gross / Sales Revenue Current Year 58000 110000 52.73 % 51.52 % Previous Year 51000 /99000 Current Results improved 2.Profit Margin = Net Income/Sales Revenue Current Year 12600 110000 11.45% 9800 /99000 =9.89% Previous Year Current Results improved 3.Earning per share Net Income/Outstanding shares Current Year 12600 / (90000/10) 1.4 Previous Year= 9800 / (90000/10) 1.09 Current Results improved 4.ROE Net Income (Avg.Stockholders Equity) Current Year 12600 / ((90000 +90000+ 33500 27500)/2) 10.46% Previous Year 9800 ((90000 +100000 +27500)/2) 9.01 % Current Results improved

5.Fixed Assets Turnover Ratio Sales Revenue (Avg.Fixed Assets) Current Year 110000 (950000 105000) /2 1.1 Previous Year 99000 105000 110000) /2 0.92 Current Results improved 6.Debt to Assets Ratio Total Liabilities/Total Assets 83000/206500 0.402 Current Year 75500 /193000 0.391 Previous Year Current Results improved 7.Times Interest Earned Operating Income / Interest Expense Current Year (58000 36000)/4000 5.5 Previous Year= (51000 33000) /4000 4.5 Current Results improved 8.Price Earnings Ratio Market Price / EPs Current Year 18 /1.4 12.86 Previous Year 15/1.09 13.76 Current Results Dipped