Use the following financial statements of Precision Co. to complete these requirements.
1. Prepare comparative income statements showing the percent increase or decrease for year 2011 in comparison to year 2010.
2. Prepare common size comparative balance sheets for years 2011 and 2010.
3. Compute the following ratios as of December 31, 2011, or for the year ended December 31, 2011, and identify its building block category for financial statement analysis.
a. Current ratio
b. Acid test ratio
c. Accounts receivable turnover
d. Days’ sales uncollected
e. Inventory turnover
f. Debt ratio
g. Debt to equity ratio
h. Times interest earned
i. Profit margin ratio
j. Total asset turnover
k. Return on total assets
l. Return on common stockholders’ equity
|
PRECISION COMPANY |
||
|
2011 |
2010 |
|
|
Sales |
$2,486,000 |
$2,075,000 |
|
Cost of goods sold |
1,523,000 |
1,222,000 |
|
Gross profit |
963,000 |
853,000 |
|
Operating expenses |
|
|
|
Advertising expense |
145,000 |
100,000 |
|
Sales salaries expense |
240,000 |
280,000 |
|
Office salaries expense |
165,000 |
200,000 |
|
Insurance expense |
100,000 |
45,000 |
|
Supplies expense |
26,000 |
35,000 |
|
Depreciation expense |
85,000 |
75,000 |
|
Miscellaneous expenses |
17,000 |
15,000 |
|
Total operating expenses |
778,000 |
750,000 |
|
Operating income |
185,000 |
103,000 |
|
Interest expense |
44,000 |
46,000 |
|
Income before taxes |
141,000 |
57,000 |
|
Income taxes |
47,000 |
19,000 |
|
Net income |
$94,000 |
$38,000 |
|
Earnings per share |
$0.99 |
$0.4 |
|
PRECISION COMPANY |
||
|
2011 |
2010 |
|
|
Assets |
||
|
Current assets |
|
|
|
Cash |
$79,000 |
$42,000 |
|
Short term investments |
65,000 |
96,000 |
|
Accounts receivable, net |
120,000 |
100,000 |
|
Merchandise inventory |
250,000 |
265,000 |
|
Total current assets |
514,000 |
503,000 |
|
Plant assets |
|
|
|
Store equipment, net |
400,000 |
350,000 |
|
Office equipment, net |
45,000 |
50,000 |
|
Buildings, net |
625,000 |
675,000 |
|
Land |
100,000 |
100,000 |
|
Total plant assets |
1,170,000 |
1,175,000 |
|
Total assets |
$1,684,000 |
$1,678,000 |
|
Liabilities |
|
|
|
Current liabilities |
|
|
|
Accounts payable |
$164,000 |
$190,000 |
|
Short term notes payable |
75,000 |
90,000 |
|
Taxes payable |
26,000 |
12,000 |
|
Total current liabilities |
265,000 |
292,000 |
|
Long term liabilities |
|
|
|
Notes payable (secured by |
|
|
|
mortgage on buildings) |
400,000 |
420,000 |
|
Total liabilities |
665,000 |
712,000 |
|
Stockholders’ Equity |
|
|
|
Common stock, $5 par value |
475,000 |
475,000 |
|
Retained earnings |
544,000 |
491,000 |
|
Total stockholders’ equity |
1,019,000 |
966,000 |
|
Total liabilities and equity |
$1,684,000 |
$1,678,000 |