Ratio Analysis Comparative financial statements of the Boeckman Company for 2006 and 2007 are as follows:
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Comparative Balance Sheets |
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December 31, |
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2007 |
2006 |
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Assets |
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Current assets |
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Cash |
$7,940 |
$5,760 |
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Temporary investments (at market) |
10,060 |
4,240 |
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Accounts receivable |
18,000 |
19,500 |
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Inventories |
32,000 |
27,000 |
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Prepaid insurance |
15,000 |
14,000 |
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Total current assets |
$83,000 |
$70,500 |
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Property and plant (net) |
64,000 |
46,000 |
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Investments |
36,000 |
32,000 |
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Long term receivables |
38,600 |
31,000 |
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Patents, net |
13,000 |
9,000 |
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Other assets |
30,000 |
27,500 |
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Total Assets |
$264,600 |
$216,000 |
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Liabilities |
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Current liabilities |
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Accounts payable |
$17,800 |
$16,500 |
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Income taxes payable |
7,500 |
6,800 |
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Accrued payables |
1,500 |
1,400 |
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Current portion of long term debt |
3,200 |
3,200 |
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Total current liabilities |
$30,000 |
$27,900 |
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Long term debt |
$56,300 |
$48,000 |
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Deferred income taxes |
12,500 |
11,800 |
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Total other liabilities |
7,200 |
8,300 |
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Total liabilities |
$106,000 |
$96,000 |
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Stockholders’ Equity |
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Common stock, $5 par |
$35,000 |
$30,000 |
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Premium on common stock |
36,000 |
24,600 |
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Retained earnings |
86,600 |
$64,800 |
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Accumulated other |
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comprehensive income |
1,000 |
600 |
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Total stockholders’ equity |
$158,600 |
$120,000 |
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Total Liabilities and Stockholders’ Equity |
$264,600 |
$216,000 |
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Comparative Income Statements |
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For Years Ended December 31, |
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2007 |
2006 |
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Sales |
$278,000 |
$256,000 |
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Sales returns |
8,000 |
6,000 |
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Net sales (68% on credit) |
$270,000 |
$250,000 |
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Cost of goods sold |
175,500 |
170,000 |
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Gross profit |
$94,500 |
$80,000 |
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Selling expenses |
21,500 |
18,200 |
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General expenses |
27,560 |
23,550 |
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Interest expense |
4,300 |
3,100 |
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Total expenses |
$53,360 |
$44,850 |
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For Years Ended December 31, |
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2007 |
2006 |
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Income before income taxes |
$41,140 |
$35,150 |
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Income tax expense |
12,340 |
10,550 |
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Net income |
$28,800 |
$24,600 |
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Beginning retained earnings |
64,800 |
43,200 |
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Common stock dividends |
7,000 |
3,000 |
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Ending retained earnings |
$86,600 |
$64,800 |
Additional information: The Boeckman Company is listed on the New York Stock Exchange. It issued 1,000 additional shares of common stock at the beginning of 2007. The market value of its common stock was quoted at $17 per share at December 31, 2007. The company uses a 365 day business year in its ratio analysis.
Required
1. Based on the preceding information, compute (for the year 2007 only) the following ratios for Boeckman:
a. Dividend yield
b. Price/earnings
c. Profit margin
d. Return on total assets
e. Return on stockholders’ equity
f. Current
g. Acid test
h. Inventory turnover (in days)
i. Receivables turnover (in days)
j. Payables turnover (in days)
k. Average operating cycle (in days)
l. Debt
m. Interest coverage
n. Book value per common share
2. Briefly discuss what a potential investor might do to evaluate the results of these ratios.