The financial statements for Armstrong and Blair companies are summarized here:
Armstrong
Company Blair
Company Balance Sheet Cash $ 27,000 $ 14,000 Accounts Receivable, Net 32,000 22,000 Inventory 84,000 24,000 Equipment, Net 164,000 284,000 Other Assets 37,000 400,000 Total Assets $ 344,000 $ 744,000 Current Liabilities $ 84,000 $ 34,000 Note Payable (long-term) 44,000 354,000 Total Liabilities 128,000 388,000 Common Stock (par $10) 142,000 192,000 Additional Paid-in Capital 22,000 102,000 Retained Earnings 52,000 62,000 Total Liabilities and Stockholdersâ Equity $ 344,000 $ 744,000 Income Statement Sales Revenue $ 426,000 $ 786,000 Cost of Goods Sold 237,000 397,000 Other Expenses 152,000 307,000 Net Income $ 37,000 $ 82,000 Other Data Estimated value of each share at end of year $ 18 $ 27 Selected Data from Previous Year Accounts Receivable, Net $ 12,000 $ 30,000 Inventory 84,000 37,000 Equipment, Net 164,000 284,000 Note Payable (long-term) 44,000 62,000 Total Stockholdersâ Equity 223,000 432,000
The companies are in the same line of business and are direct competitors in a large metropolitan area. Both have been in business approximately 10 years and each has had steady growth. Despite these similarities, the management of each has a different viewpoint in many respects. Blair is more conservative, and as its president said, âWe avoid what we consider to be undue risk.â Both companies use straight-line depreciation, but Blair estimates slightly shorter useful lives than Armstrong. No shares were issued in the current year and neither company is publicly held. Blair Company has an annual audit by a CPA, but Armstrong Company does not. Assume the end-of-year total assets and net equipment balances approximate the yearâs average and all sales are on account.
Required:
1. Calculate the following ratios.
TIP: To calculate EPS, use the balance in Common Stock to determine the number of shares outstanding. Common Stock equals the par value per share times the number of shares. (Use 365 days in a year. Round your intermediate calculations and your final answers to 2 decimal places.)
Ratio Armstrong Company Blair Company Tests of Profitability: 1. Net Profit Margin 8.69 % 10.43 % 2. Gross Profit Percentage % % 3. Fixed Asset Turnover 4. Return on Equity % % 5. Earnings per Share 6. Price/Earnings Ratio Tests of Liquidity: 7. Receivables Turnover Days to Collect 8. Inventory Turnover Days to Sell 9. Current Ratio Tests of Solvency: 10. Debt-to-Assets
| The financial statements for Armstrong and Blair companies are summarized here: |
| Armstrong Company | Blair Company | |||||
| Balance Sheet | ||||||
| Cash | $ | 27,000 | $ | 14,000 | ||
| Accounts Receivable, Net | 32,000 | 22,000 | ||||
| Inventory | 84,000 | 24,000 | ||||
| Equipment, Net | 164,000 | 284,000 | ||||
| Other Assets | 37,000 | 400,000 | ||||
| Total Assets | $ | 344,000 | $ | 744,000 | ||
| Current Liabilities | $ | 84,000 | $ | 34,000 | ||
| Note Payable (long-term) | 44,000 | 354,000 | ||||
| Total Liabilities | 128,000 | 388,000 | ||||
| Common Stock (par $10) | 142,000 | 192,000 | ||||
| Additional Paid-in Capital | 22,000 | 102,000 | ||||
| Retained Earnings | 52,000 | 62,000 | ||||
| Total Liabilities and Stockholdersâ Equity | $ | 344,000 | $ | 744,000 | ||
| Income Statement | ||||||
| Sales Revenue | $ | 426,000 | $ | 786,000 | ||
| Cost of Goods Sold | 237,000 | 397,000 | ||||
| Other Expenses | 152,000 | 307,000 | ||||
| Net Income | $ | 37,000 | $ | 82,000 | ||
| Other Data | ||||||
| Estimated value of each share at end of year | $ | 18 | $ | 27 | ||
| Selected Data from Previous Year | ||||||
| Accounts Receivable, Net | $ | 12,000 | $ | 30,000 | ||
| Inventory | 84,000 | 37,000 | ||||
| Equipment, Net | 164,000 | 284,000 | ||||
| Note Payable (long-term) | 44,000 | 62,000 | ||||
| Total Stockholdersâ Equity | 223,000 | 432,000 | ||||
| The companies are in the same line of business and are direct competitors in a large metropolitan area. Both have been in business approximately 10 years and each has had steady growth. Despite these similarities, the management of each has a different viewpoint in many respects. Blair is more conservative, and as its president said, âWe avoid what we consider to be undue risk.â Both companies use straight-line depreciation, but Blair estimates slightly shorter useful lives than Armstrong. No shares were issued in the current year and neither company is publicly held. Blair Company has an annual audit by a CPA, but Armstrong Company does not. Assume the end-of-year total assets and net equipment balances approximate the yearâs average and all sales are on account. |
| Required: |
| 1. | Calculate the following ratios. |
| TIP: To calculate EPS, use the balance in Common Stock to determine the number of shares outstanding. Common Stock equals the par value per share times the number of shares. (Use 365 days in a year. Round your intermediate calculations and your final answers to 2 decimal places.) |
| Ratio | Armstrong Company | Blair Company | |||
| Tests of Profitability: | |||||
| 1. | Net Profit Margin | 8.69 | % | 10.43 | % |
| 2. | Gross Profit Percentage | % | % | ||
| 3. | Fixed Asset Turnover | ||||
| 4. | Return on Equity | % | % | ||
| 5. | Earnings per Share | ||||
| 6. | Price/Earnings Ratio | ||||
| Tests of Liquidity: | |||||
| 7. | Receivables Turnover | ||||
| Days to Collect | |||||
| 8. | Inventory Turnover | ||||
| Days to Sell | |||||
| 9. | Current Ratio | ||||
| Tests of Solvency: | |||||
| 10. | Debt-to-Assets | ||||
