The condensed financial statements of James Company for the years 2007-2008 are presented below:
Comparative Balance Sheets
As of December 31, 2008 and 2007
Cash $ 420,000 $ 120,000
Receivables (net) 460,000 300,000
Inventories 380,000 340,000
Plant and equipment 1,700,000 1,112,000
Accumulated depreciation (260,000) (192,000)
Accounts payable $ 240,000 $ 160,000
Dividends payable -0- 40,000
Bonds payable 400,000 -0-
Common stock ($10 par) 1,520,000 1,200,000
Retained earnings 540,000 280,000
Market value of stock at 12/31/08 is $80 per share.
James sold 32,000 shares of common stock at par on July 1, 2008.
Condensed Income Statement
For the Year Ended December 31, 2008
Cost of goods sold 1,600,000
Gross profit 800,000
Administrative and selling expense 500,000
Net income $ 300,000
Compute the following financial ratios by placing the proper amounts in the parentheses provided for numerators and denominators. Fill in the numerator and denominator only; do not compute the ratios.
a. Current ratio at 12/31/08 ( )
b. Acid test ratio at 12/31/08 ( )
c. Receivables turnover in 2008 ( )
d. Inventory turnover in 2008 ( )
e. Profit margin on sales in 2008 ( )
f. Earnings per share in 2008 ( )
g. Rate of return on common stock equity in 2008 ( )
h. Price earnings ratio at 12/31/08 ( )
i. Debt to total assets at 12/31/08 ( )
j. Book value per share at 12/31/08 ( )
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The solution examines financial statement analysis for James Company. The comparative balance sheets are analyzed.
Analysis of Financial Statements and Preparation of Income Statements
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1. Compute the following ratios for both companies for the current year, and decide which company's stock better fits your investment strategy.
" a. Acid-test ratio
b. Inventory turnover
c. Days' sales in receivables
d. Debt ratio
e. Earnings per share of common stock
f. Price/earnings ratio
g. Dividend payout"