Financial Accounting (12th Edition) (What's New in Accounting)
12th Edition
ISBN: 9780134725987
Author: C. William Thomas, Wendy M. Tietz, Walter T. Harrison Jr.
Publisher: PEARSON
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Textbook Question
Chapter 12, Problem 12.65BP
LO 4
(Learning Objective 4: Use ratios to evaluate a stock investment) Comparative financial statement data of Stow Optical Mart follow:
Other information:
- 1. Market price of Stow Optical Mart common stock: $122.91 at December 31 , 2018, and $165.75 at December 31, 2017
- 2. Common shares outstanding: 13,000 during 2018 and 8,000 during 2017
- 3. All sales on credit
- 4. Cash dividends paid per share: $2.75 per share in 2018 and $4.00 in 2017
Requirements
1. Calculate the following ratios for 2018 and 2017:
- a.
Current ratio - b. Quick (acid-test) ratio
- c. Receivables turnover and days’ sales outstanding (DSO)-round to the nearest whole day
- d. Inventory turnover and days’ inventory outstanding (DIO)-round to the nearest whole day
- e. Accounts payable turnover and days’ payable outstanding (DPO)-use cost of goods sold in the turnover ratio and round DPO to the nearest whole day
- f. Cash conversion cycle (in days)
- g. Times-interest-earned ratio
- h. Return on assets-use DuPont Analysis
- i. Return on common stockholders’ equity-use DuPont Analysis
- j. Earnings per share of common stock
- k. Price-earnings ratio
2. Decide whether (a) Stow Optical Mart’s financial position improved or deteriorated during 2018 and (b) whether the investment attractiveness of the company’s common stock appears to have increased or decreased from 2017 to 2018.
3. How will what you learned in this problem help you evaluate an investment?
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Additional information:
1.
The market price of Pina’s common stock was $7.00, $7.50, and $8.50 for 2020, 2021, and 2022, respectively.
2.
You must compute dividends paid. All dividends were paid in cash.
Compute the following ratios for 2021 and 2022.
2022
2021
Profit margin
enter percentages
%
enter percentages
%
(Round answers to 1 decimal place, e.g. 1.5%.)
Gross profit rate
enter percentages
%
enter percentages
%
(Round answers to 1 decimal place, e.g. 1.5%.)
Asset turnover
enter asset turnover in times
times
enter asset turnover in times
times
(Round answers to 2 decimal places, e.g. 1.83.)
Earnings per share
$enter earnings per share in dollars
$enter earnings per share in dollars
(Round answers to 2 decimal places, e.g. 1.83.)
Price-earnings ratio
enter price-earnings ratio in times
times
enter price-earnings ratio in times
times
(Round answers to 1 decimal place,…
Profitability Ratios
The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 2017, 20Y6, and 20Y5:
December 31
20Y7
20Y6
20Y5
Total assets
$163,000
$147,000
$131,000
Notes payable (8% interest)
50,000
50,000
50,000
Common stock
20,000
20,000
20,000
Preferred 5% stock, $100 par
10,000
10,000
10,000
(no change during year)
Retained earnings
59,090
39,790
30,000
The 2017 net income was $19,800, and the 2016 net income was $10,290. No dividends on common stock were declared between 2015 and 20Y7. Preferred dividends were declared and paid in full in 2016 and 2017.
a. Determine the return on total assets, the rate earned on stockholders' equity, and the return on common stockholders' equity for the years 2016 and 2017. When required, round to one decimal place.
20Y7
20Y6
Return on total assets
Return on stockholders' equity
Return on common stockholders' equity
%
%
%
%
%
%
b. The profitability ratios indicate that Vidahill Inc.'s profitability…
Profitability ratios
The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 2017, 20Y6, and 20Y5:
December 31
20Y7
December 31
20Y6
December 31
20Y5
Total assets
$307,000
$277,000
$247,000
Notes payable (8% interest)
100,000
100,000
100,000
Common stock
40,000
40,000
40,000
Preferred 6% stock, $100 par
(no change during year)
Retained earnings
20,000
109,920
20,000
80,240
20,000
60,000
The 20Y7 net income was $30,880, and the 2016 net income was $21,440. No dividends on common stock were declared between 2015 and 2017. Preferred dividends were declared and paid in full in 2016 and 2017.
a. Determine the return on total assets, the return on stockholders' equity, and the return on common stockholders' equity for the years 2016 and 2017. When required, round your answers to one decimal place.
20Y7
20Y6
Return on total assets
Return on stockholders' equity
Return on common stockholders' equity
%
%
%
%
%
%
b. The profitability ratios indicate…
Chapter 12 Solutions
Financial Accounting (12th Edition) (What's New in Accounting)
Ch. 12 - Prob. 1QCCh. 12 - Prob. 2QCCh. 12 - Prob. 3QCCh. 12 - Prob. 4QCCh. 12 - Expressing accounts receivable as a percentage of...Ch. 12 - Kincaid Company reported the following data (in...Ch. 12 - Prob. 7QCCh. 12 - Ratios that measure liquidity include all of the...Ch. 12 - Verba Corporation has an inventory turnover of 15...Ch. 12 - The measure of a companys ability to collect cash...
Ch. 12 - A ratio that measures a companys profitability is...Ch. 12 - Prob. 12QCCh. 12 - Prob. 13QCCh. 12 - Prob. 14QCCh. 12 - Prob. 12.1ECCh. 12 - Prob. 12.1SCh. 12 - Prob. 12.2SCh. 12 - Prob. 12.3SCh. 12 - Prob. 12.4SCh. 12 - Prob. 12.5SCh. 12 - (Learning Objective 4: Evaluate a companys quick...Ch. 12 - Prob. 12.7SCh. 12 - (Learning Objective 4: Measure ability to pay...Ch. 12 - (Learning Objective 4: Measure profitability using...Ch. 12 - Prob. 12.10SCh. 12 - (Learning Objective 4: Use ratio data to...Ch. 12 - Prob. 12.12SCh. 12 - (Learning Objective 4: Analyze a company based on...Ch. 12 - Prob. 12.14SCh. 12 - Prob. 12.15SCh. 12 - Prob. 12.16AECh. 12 - Prob. 12.17AECh. 12 - Prob. 12.18AECh. 12 - Prob. 12.19AECh. 12 - Prob. 12.20AECh. 12 - Prob. 12.21AECh. 12 - Prob. 12.22AECh. 12 - Prob. 12.23AECh. 12 - Prob. 12.24AECh. 12 - Prob. 12.25AECh. 12 - Prob. 12.26AECh. 12 - Prob. 12.27BECh. 12 - Prob. 12.28BECh. 12 - Prob. 12.29BECh. 12 - Prob. 12.30BECh. 12 - Prob. 12.31BECh. 12 - LO 4 (Learning Objective 4: Calculate ratios;...Ch. 12 - Prob. 12.33BECh. 12 - Prob. 12.34BECh. 12 - Prob. 12.35BECh. 12 - Prob. 12.36BECh. 12 - Prob. 12.37BECh. 12 - Prob. 12.38QCh. 12 - Prob. 12.39QCh. 12 - Prob. 12.40QCh. 12 - Prob. 12.41QCh. 12 - Prob. 12.42QCh. 12 - Prob. 12.43QCh. 12 - Prob. 12.44QCh. 12 - Use the Orlando Medical Corporation financial...Ch. 12 - Prob. 12.46QCh. 12 - Use the Orlando Medical Corporation financial...Ch. 12 - Prob. 12.48QCh. 12 - Prob. 12.49QCh. 12 - Prob. 12.50QCh. 12 - Prob. 12.51QCh. 12 - Prob. 12.52QCh. 12 - Prob. 12.53QCh. 12 - Prob. 12.54QCh. 12 - Prob. 12.55QCh. 12 - LO 1, 2, 4 (Learning Objectives 1, 2, 4: Calculate...Ch. 12 - Prob. 12.57APCh. 12 - Prob. 12.58APCh. 12 - LO 4 (Learning Objective 4: Use ratios to evaluate...Ch. 12 - Prob. 12.60APCh. 12 - LO 2, 4, 5 (Learning Objectives 2, 4, 5: Analyze...Ch. 12 - Group B LO 1, 2, 4 (Learning Objectives 1, 2, 4:...Ch. 12 - Prob. 12.63BPCh. 12 - Prob. 12.64BPCh. 12 - LO 4 (Learning Objective 4: Use ratios to evaluate...Ch. 12 - Prob. 12.66BPCh. 12 - LO 2, 4, 5 (Learning Objectives 2, 4, 5: Analyze...Ch. 12 - Prob. 12.68CEPCh. 12 - Prob. 12.69CEPCh. 12 - (Learning Objectives 2, 3.4: Use trend...Ch. 12 - (Learning Objectives 4, 5: Calculate and analyze...Ch. 12 - Prob. 12.72DCCh. 12 - Prob. 12.73DCCh. 12 - Prob. 12.74EICCh. 12 - Focus on Financials Apple Inc. LO 1, 2, 3, 4, 5...Ch. 12 - Comprehensive Financial Statement Analysis Project...
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