Exercise 12-8 Matthias Medical manufactures hospital beds andother institutional furniture. The companyâs comparative balancesheet and income statement for 2012 and 2013 follow. MatthiasMedical Comparative Balance Sheet As of December 31 2013 2012Assets Current assets Cash $393,000 $417,400 Accounts receivable,net 1,077,000 776,450 Inventory 735,000 681,050 Other currentassets 381,400 247,050 Total current assets 2,586,400 2,121,950Property, plant, & equipment, net 8,639,160 8,440,060 Totalassets $11,225,560 $10,562,010 Liabilities and Stockholdersâ EquityCurrent liabilities $3,165,000 $2,846,050 Long-term debt 3,702,6003,892,700 Total liabilities 6,867,600 6,738,750 Preferred stock, $5par value 58,950 58,950 Common stock, $0.25 par value 104,650103,850 Retained earnings 4,194,360 3,660,460 Total stockholdersâequity 4,357,960 3,823,260 Total liabilities and stockholdersâequity $11,225,560 $10,562,010 Matthias Medical Comparative IncomeStatement and Statement of Retained Earnings For the Year 2013 2012Sales revenue (all on account) $10,177,300 $9,613,950 Cost of goodssold 5,612,800 5,298,800 Gross profit 4,564,500 4,315,150 Operatingexpenses 2,840,200 2,634,150 Net operating income 1,724,3001,681,000 Interest expense 300,300 308,700 Net income before taxes1,424,000 1,372,300 Income taxes (30%) 427,200 411,690 Net income$996,800 $960,610 Dividends paid Preferred dividends 29,550 29,550Common dividends 433,350 413,000 Total dividends paid 462,900442,550 Net income retained 533,900 518,060 Retained earnings,beginning of year 3,660,460 3,142,400 Retained earnings, end ofyear $4,194,360 $3,660,460 Calculate the following liquidity ratiosfor 2013. (If working capital is negative then enter with anegative sign preceding the number or parenthesis, e.g. -15,000 or(15,000). Round all answers except working capital to 2 decimalplaces, e.g. 2.55.) a. Working capital $ b. Current ratio c.Acid-test ratio d. Accounts receivable turnover times Calculate thefollowing liquidity ratios for 2013. (Round average collectionperiod to 0 decimal place, e.g. 25 and inventory turnover ratio to2 decimal places, e.g. 5.12. Use 365 days for calculation.) a.Average collection period days b. Inventory turnover timesCalculate average days to sell inventory for 2013. (Round answer to0 decimal places, e.g. 25. Use 365 days for calculation.) Averagedays to sell inventory days
Exercise 12-8 Matthias Medical manufactures hospital beds andother institutional furniture. The companyâs comparative balancesheet and income statement for 2012 and 2013 follow. MatthiasMedical Comparative Balance Sheet As of December 31 2013 2012Assets Current assets Cash $393,000 $417,400 Accounts receivable,net 1,077,000 776,450 Inventory 735,000 681,050 Other currentassets 381,400 247,050 Total current assets 2,586,400 2,121,950Property, plant, & equipment, net 8,639,160 8,440,060 Totalassets $11,225,560 $10,562,010 Liabilities and Stockholdersâ EquityCurrent liabilities $3,165,000 $2,846,050 Long-term debt 3,702,6003,892,700 Total liabilities 6,867,600 6,738,750 Preferred stock, $5par value 58,950 58,950 Common stock, $0.25 par value 104,650103,850 Retained earnings 4,194,360 3,660,460 Total stockholdersâequity 4,357,960 3,823,260 Total liabilities and stockholdersâequity $11,225,560 $10,562,010 Matthias Medical Comparative IncomeStatement and Statement of Retained Earnings For the Year 2013 2012Sales revenue (all on account) $10,177,300 $9,613,950 Cost of goodssold 5,612,800 5,298,800 Gross profit 4,564,500 4,315,150 Operatingexpenses 2,840,200 2,634,150 Net operating income 1,724,3001,681,000 Interest expense 300,300 308,700 Net income before taxes1,424,000 1,372,300 Income taxes (30%) 427,200 411,690 Net income$996,800 $960,610 Dividends paid Preferred dividends 29,550 29,550Common dividends 433,350 413,000 Total dividends paid 462,900442,550 Net income retained 533,900 518,060 Retained earnings,beginning of year 3,660,460 3,142,400 Retained earnings, end ofyear $4,194,360 $3,660,460 Calculate the following liquidity ratiosfor 2013. (If working capital is negative then enter with anegative sign preceding the number or parenthesis, e.g. -15,000 or(15,000). Round all answers except working capital to 2 decimalplaces, e.g. 2.55.) a. Working capital $ b. Current ratio c.Acid-test ratio d. Accounts receivable turnover times Calculate thefollowing liquidity ratios for 2013. (Round average collectionperiod to 0 decimal place, e.g. 25 and inventory turnover ratio to2 decimal places, e.g. 5.12. Use 365 days for calculation.) a.Average collection period days b. Inventory turnover timesCalculate average days to sell inventory for 2013. (Round answer to0 decimal places, e.g. 25. Use 365 days for calculation.) Averagedays to sell inventory days
Related questions
You have just been hired as a loan officer at Fairfield StateBank. Your supervisor has given you a file containing a requestfrom Hedrick Company, a manufacturer of auto components, for a$1,000,000 five-year loan. Financial statement data on the companyfor the last two years are given below: |
| Hedrick Company | ||||
| Comparative Balance Sheet | ||||
| This Year | Last Year | |||
| Assets | ||||
| Current assets: | ||||
| Cash | $ | 336,000 | $ | 426,000 |
| Marketablesecurities | 0 | 104,000 | ||
| Accounts receivable,net | 905,000 | 596,000 | ||
| Inventory | 1,390,000 | 860,000 | ||
| Prepaid expenses | 78,000 | 63,000 | ||
| Total currentassets | 2,709,000 | 2,049,000 | ||
| Plant and equipment,net | 3,181,100 | 3,108,300 | ||
| Total assets | $ | 5,890,100 | $ | 5,157,300 |
| Liabilitiesand Stockholders' Equity | ||||
| Liabilities: | ||||
| Current liabilities | $ | 1,260,000 | $ | 800,000 |
| Bonds payable, 10% | 1,160,000 | 1,110,000 | ||
| Totalliabilities | 2,420,000 | 1,910,000 | ||
| Stockholders'equity: | ||||
| Preferred stock, 8%, $30par value | 600,000 | 600,000 | ||
| Common stock, $40 parvalue | 2,000,000 | 2,000,000 | ||
| Retained earnings | 870,100 | 647,300 | ||
| Total stockholders'equity | 3,470,100 | 3,247,300 | ||
| Total liabilitiesand stockholders' equity | $ | 5,890,100 | $ | 5,157,300 |
| Hedrick Company | ||||
| Comparative Income Statement and Reconciliation | ||||
| This Year | Last Year | |||
| Sales (all onaccount) | $ | 5,260,000 | $ | 4,290,000 |
| Cost of goodssold | 4,120,000 | 3,120,000 | ||
| Gross margin | 1,140,000 | 1,170,000 | ||
| Selling andadministrative expenses | 520,000 | 520,000 | ||
| Net operatingincome | 620,000 | 650,000 | ||
| Interestexpense | 116,000 | 111,000 | ||
| Net income beforetaxes | 504,000 | 539,000 | ||
| Income taxes(30%) | 151,200 | 161,700 | ||
| Net income | 352,800 | 377,300 | ||
| Dividends paid: | ||||
| Preferred stock | 48,000 | 48,000 | ||
| Common stock | 82,000 | 41,000 | ||
| Total dividendspaid | 130,000 | 89,000 | ||
| Net incomeretained | 222,800 | 288,300 | ||
| Retained earnings,beginning of year | 647,300 | 359,000 | ||
| Retained earnings,end of year | $ | 870,100 | $ | 647,300 |
Marva Rossen, who just two yearsago was appointed president of Hedrick Company, admits that thecompany has been âinconsistentâ in its performance over the pastseveral years. But Rossen argues that the company has its costsunder control and is now experiencing strong sales growth, asevidenced by the more than 22% increase in sales over the lastyear. Rossen also argues that investors have recognized theimproving situation at Hedrick Company, as shown by the jump in theprice of its common stock from $31 per share last year to $47 pershare this year. Rossen believes that with strong leadership andwith the modernized equipment that the $1,000,000 loan will enablethe company to buy, profits will be even stronger in thefuture. |
Anxious to impress yoursupervisor, you decide to generate all the information you canabout the company. You determine that the following ratios aretypical of companies in Hedrickâs industry: |
| Current ratio | 2.3 | |
| Acid-test ratio | 1.2 | |
| Average collectionperiod | 31 | days |
| Average saleperiod | 60 | days |
| Return onassets | 9.5 | % |
| Debt-to-equityratio | 0.65 | |
| Times interestearned | 5.7 | |
| Price-earningsratio | 10 | |
| Required: |
| 1. | You decide first to assess the rate of return that the companyis generating. Compute the following for both this year and lastyear: |
| a. | The return on total assets. (Total assets at the beginning oflast year were $4,330,000.) (Round your answers to 1decimal place.) |
| This year | Lastyear | |
| Return on totalassets | % | % |
| b. | The return on common stockholdersâ equity. (Stockholders' equityat the beginning of last year totaled $4,974,022. There has been nochange in preferred or common stock over the last twoyears.)(Round your intermediate calculations to wholenumbers and final answer to 1 decimal place) |
| This year | Last year | |
| Return on commonstockholders' equity | % | % |
| c. | Is the companyâs financial leverage positive or negative? |
| This year | (Click toselect)PositiveNegative |
| Last year | (Click toselect)NegativePositive |
| 2. | You decide next to assess the well-being of the commonstockholders. For both this year and last year, compute: |
| a. | The earnings per share. (Round your answers to 2 decimalplaces.) |
| This year | Last year | |
| Earnings pershare | $ | $ |
| b. | The dividend yield ratio for common stock. (Round yourintermediate calculations to 2 decimal places and final answers to1 decimal place.) |
| This year | Last year | |
| Dividend yieldratio | % | % |
| c. | The dividend payout ratio for common stock.(Round your intermediate calculations to 2decimal places and final answers to 1 decimalplace.) |
| This year | Last year | |
| Dividend payoutratio | % | % |
| d. | The price-earnings ratio. (Round your intermediatecalculations to 2 decimal places and final answers to 1 decimalplace.) |
| This year | Last year | |
| Price-earningsratio | times | times |
| e. | The book value per share of common stock. (Round youranswers to 2 decimal places.) |
| Thisyear | Lastyear | |
| Book value pershare | $ | $ |
| f. | The gross margin percentage.(Round your answers to 1decimal place.) |
| This year | Last year | |
| Gross marginpercentage | % | % |
| 3. | You decide, finally, to assess creditor ratios to determine bothshort-term and long-term debt paying ability. For both this yearand last year, compute: |
| a. | Working capital. |
| Thisyear | Lastyear | |
| Working capital | $ | $ |
| b. | The current ratio.(Round your answers to 2 decimal places.) |
| Thisyear | Lastyear | |
| Current ratio | ||
| c. | The acid-test ratio.(Round your answers to 2 decimal places.) |
| Thisyear | Lastyear | |
| Acid-test ratio | ||
| d. | The average collection period. (The accounts receivable at thebeginning of last year totaled $527,000.) (Use 365 days ina year. Round your intermediate calculations to 2 decimal placesand final answers to the nearest whole number.) |
| This year | Last year | |
| Average collectionperiod | days | days |
| e. | The average sale period. (The inventory at the beginning of lastyear totaled $660,000.) (Use 365 days in ayear.Round your intermediate calculations to 2decimal places and final answers to the nearest wholenumber.) |
| This year | Last year | |
| Average saleperiod | days | days |
| f. | The debt-to-equity ratio.(Round your answers to 2 decimal places.) |
| Thisyear | Lastyear | |
| Debt-to-equityratio | ||
| g. | The times interest earned.(Round your answers to 1 decimal place.) |
| Thisyear | Lastyear | |
| Times interestearned | ||
PLEASE SHOW WORK! Need Help in the concepts!
Thank you
You have just been hired as a loan officer at Fairfield StateBank. Your supervisor has given you a file containing a requestfrom Hedrick Company, a manufacturer of auto components, for a$1,000,000 five-year loan. Financial statement data on the companyfor the last two years are given below: |
| Hedrick Company | ||||
| Comparative Balance Sheet | ||||
| This Year | Last Year | |||
| Assets | ||||
| Current assets: | ||||
| Cash | $ | 336,000 | $ | 426,000 |
| Marketablesecurities | 0 | 104,000 | ||
| Accounts receivable,net | 905,000 | 596,000 | ||
| Inventory | 1,390,000 | 860,000 | ||
| Prepaid expenses | 78,000 | 63,000 | ||
| Total currentassets | 2,709,000 | 2,049,000 | ||
| Plant and equipment,net | 3,181,100 | 3,108,300 | ||
| Total assets | $ | 5,890,100 | $ | 5,157,300 |
| Liabilitiesand Stockholders' Equity | ||||
| Liabilities: | ||||
| Current liabilities | $ | 1,260,000 | $ | 800,000 |
| Bonds payable, 10% | 1,160,000 | 1,110,000 | ||
| Totalliabilities | 2,420,000 | 1,910,000 | ||
| Stockholders'equity: | ||||
| Preferred stock, 8%, $30par value | 600,000 | 600,000 | ||
| Common stock, $40 parvalue | 2,000,000 | 2,000,000 | ||
| Retained earnings | 870,100 | 647,300 | ||
| Total stockholders'equity | 3,470,100 | 3,247,300 | ||
| Total liabilitiesand stockholders' equity | $ | 5,890,100 | $ | 5,157,300 |
| Hedrick Company | ||||
| Comparative Income Statement and Reconciliation | ||||
| This Year | Last Year | |||
| Sales (all onaccount) | $ | 5,260,000 | $ | 4,290,000 |
| Cost of goodssold | 4,120,000 | 3,120,000 | ||
| Gross margin | 1,140,000 | 1,170,000 | ||
| Selling andadministrative expenses | 520,000 | 520,000 | ||
| Net operatingincome | 620,000 | 650,000 | ||
| Interestexpense | 116,000 | 111,000 | ||
| Net income beforetaxes | 504,000 | 539,000 | ||
| Income taxes(30%) | 151,200 | 161,700 | ||
| Net income | 352,800 | 377,300 | ||
| Dividends paid: | ||||
| Preferred stock | 48,000 | 48,000 | ||
| Common stock | 82,000 | 41,000 | ||
| Total dividendspaid | 130,000 | 89,000 | ||
| Net incomeretained | 222,800 | 288,300 | ||
| Retained earnings,beginning of year | 647,300 | 359,000 | ||
| Retained earnings,end of year | $ | 870,100 | $ | 647,300 |
Marva Rossen, who just two yearsago was appointed president of Hedrick Company, admits that thecompany has been âinconsistentâ in its performance over the pastseveral years. But Rossen argues that the company has its costsunder control and is now experiencing strong sales growth, asevidenced by the more than 22% increase in sales over the lastyear. Rossen also argues that investors have recognized theimproving situation at Hedrick Company, as shown by the jump in theprice of its common stock from $31 per share last year to $47 pershare this year. Rossen believes that with strong leadership andwith the modernized equipment that the $1,000,000 loan will enablethe company to buy, profits will be even stronger in thefuture. |
Anxious to impress yoursupervisor, you decide to generate all the information you canabout the company. You determine that the following ratios aretypical of companies in Hedrickâs industry: |
| Current ratio | 2.3 | |
| Acid-test ratio | 1.2 | |
| Average collectionperiod | 31 | days |
| Average saleperiod | 60 | days |
| Return onassets | 9.5 | % |
| Debt-to-equityratio | 0.65 | |
| Times interestearned | 5.7 | |
| Price-earningsratio | 10 | |
| Required: |
| 1. | You decide first to assess the rate of return that the companyis generating. Compute the following for both this year and lastyear: |
| a. | The return on total assets. (Total assets at the beginning oflast year were $4,330,000.) (Round your answers to 1decimal place.) |
| This year | Lastyear | |
| Return on totalassets | % | % |
| b. | The return on common stockholdersâ equity. (Stockholders' equityat the beginning of last year totaled $4,974,022. There has been nochange in preferred or common stock over the last twoyears.)(Round your intermediate calculations to wholenumbers and final answer to 1 decimal place) |
| This year | Last year | |
| Return on commonstockholders' equity | % | % |
| c. | Is the companyâs financial leverage positive or negative? |
| This year | (Click toselect)PositiveNegative |
| Last year | (Click toselect)NegativePositive |
| 2. | You decide next to assess the well-being of the commonstockholders. For both this year and last year, compute: |
| a. | The earnings per share. (Round your answers to 2 decimalplaces.) |
| This year | Last year | |
| Earnings pershare | $ | $ |
| b. | The dividend yield ratio for common stock. (Round yourintermediate calculations to 2 decimal places and final answers to1 decimal place.) |
| This year | Last year | |
| Dividend yieldratio | % | % |
| c. | The dividend payout ratio for common stock.(Round your intermediate calculations to 2decimal places and final answers to 1 decimalplace.) |
| This year | Last year | |
| Dividend payoutratio | % | % |
| d. | The price-earnings ratio. (Round your intermediatecalculations to 2 decimal places and final answers to 1 decimalplace.) |
| This year | Last year | |
| Price-earningsratio | times | times |
| e. | The book value per share of common stock. (Round youranswers to 2 decimal places.) |
| Thisyear | Lastyear | |
| Book value pershare | $ | $ |
| f. | The gross margin percentage.(Round your answers to 1decimal place.) |
| This year | Last year | |
| Gross marginpercentage | % | % |
| 3. | You decide, finally, to assess creditor ratios to determine bothshort-term and long-term debt paying ability. For both this yearand last year, compute: |
| a. | Working capital. |
| Thisyear | Lastyear | |
| Working capital | $ | $ |
| b. | The current ratio.(Round your answers to 2 decimal places.) |
| Thisyear | Lastyear | |
| Current ratio | ||
| c. | The acid-test ratio.(Round your answers to 2 decimal places.) |
| Thisyear | Lastyear | |
| Acid-test ratio | ||
| d. | The average collection period. (The accounts receivable at thebeginning of last year totaled $527,000.) (Use 365 days ina year. Round your intermediate calculations to 2 decimal placesand final answers to the nearest whole number.) |
| This year | Last year | |
| Average collectionperiod | days | days |
| e. | The average sale period. (The inventory at the beginning of lastyear totaled $660,000.) (Use 365 days in ayear.Round your intermediate calculations to 2decimal places and final answers to the nearest wholenumber.) |
| This year | Last year | |
| Average saleperiod | days | days |
| f. | The debt-to-equity ratio.(Round your answers to 2 decimal places.) |
| Thisyear | Lastyear | |
| Debt-to-equityratio | ||
| g. | The times interest earned.(Round your answers to 1 decimal place.) |
| Thisyear | Lastyear | |
| Times interestearned | ||
