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Analysis of Financial Statements

The market value of Adler Corp.'s common shares was quoted at $54 per share at December 31, 2004, and 2003. Adler's balance sheet at December 31, 2004, and 2003, and statement of income and retained earnings for the years then ended are presented below:

Adler Corp.
Balance Sheet
December 31
2004 2003
Assets:
Current assets:
Cash $ 9,000,000 $ 5,200,000
Short-term investments 17,200,000 11,400,000
Accounts receivable (net) 109,000,000 115,000,000
Inventories, lower of cost or market 122,000,000 140,000,000
Prepaid expenses 4,000,000 2,800,000
Total current assets $261,200,000 $274,400,000

Property, plant, and equipment (net) 350,000,000 315,000,000
Investments, at equity 2,800,000 3,500,000
Long-term receivables 15,000,000 20,000,000
Copyrights and patents (net) 6,000,000 7,000,000
Other assets 8,000,000 9,100,000
Total assets $643,000,000 $629,000,000

Liabilities and Stockholders' Equity:
Current liabilities:
Notes payable $ 7,000,000 $ 17,000,000
Accounts payable 35,000,000 52,000,000
Accrued expenses 27,500,000 30,000,000
Income taxes payable 1,500,000 2,000,000
Current portion of long-term debt 10,000,000 9,500,000
Total current liabilities 81,000,000 110,500,000

Long-term debt 200,000,000 190,000,000
Deferred income taxes 69,000,000 65,000,000
Other liabilities 15,000,000 9,500,000
Total liabilities 365,000,000 375,000,000

Stockholders' equity:
Common stock, par value $1; authorized 20,000,000
shares; issued and outstanding 12,000,000 shares 12,000,000 12,000,000
10% cumulative preferred shares, par value $100;
$100 liquidating value; authorized 100,000 shares;
issued and outstanding 60,000 shares 6,000,000 6,000,000
Additional paid-in capital 119,000,000 119,000,000
Retained earnings 141,000,000 117,000,000
Total stockholders' equity 278,000,000 254,000,000
Total liabilities and stockholders' equity $643,000,000 $629,000,000

Problem X (cont.).
Adler Corp.
Statement of Income and Retained Earnings
Year ended December 31
2004 2003
Net sales $540,000,000 $500,000,000
Cost and expenses:
Cost of goods sold 370,900,000 400,000,000
Selling, general, and administrative expenses 70,000,000 65,000,000
Other, net 9,100,000 6,000,000
Total costs and expenses 450,000,000 471,000,000

Income before income taxes 90,000,000 29,000,000
Income taxes 27,000,000 11,600,000
Net income 63,000,000 17,400,000

Retained earnings at beginning of period 117,000,000 113,100,000
Dividends on common stock (38,500,000) (13,000,000)
Dividends on preferred stock (500,000) (500,000)
Retained earnings at end of period $141,000,000 $117,000,000

Instructions

Based on the above information, compute the following (for the year 2004 only): (Show supporting computations in good form.)

(a) Current ratio.

(b) Acid-test (quick) ratio.

(c) Receivables turnover.

(d) Inventory turnover.

(e) Book value per share of common stock.

(f) Earnings per share on common stock.

(g) Price-earnings ratio on common stock.

(h) Payout ratio on common stock.

Solution Preview

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(a) Current Ratio = Current Assets/Current ...

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