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Income Statement and Balance Sheet to Prepare a Ratio Analysis

Income Statement for Joe's-Fly-by-Night Oil company for the year ended December 31, 2011

Sales $10,000
Less: Cost of goods sold $4,000
Gross profit $6,000
Less: Selling, general, & administrative expenses $3,000
EBIT $3,000
Less: Interest Expenses $200
EBT $2,800
Less: Income tax expense $1,000
Net Income $1,800
Dividend Paid $600
Addition to retained earnings $1,200

Balance Sheet for Joe's-Fly-by-Night Oil company for the year ended December 31, 2011

Cash $5,000
Accounts Receivables $3,000
Inventory $17,000
Current Assets $25,000
Equipment (Gross) $27,000
Less: Accumulated Depreciation $12,000
Equipment (Net) $15,000
Total Asset $40,000
Liabilities & Equity
Accounts Payable $17,000
Current Liabilities $17,000
Long Term Debt $3,000
Total Liabilities $20,000
Common Stock (1,000 shares) $7,000
Retained Earnings $13,000
Total Equity $20,000
Total Liabilities and Equity $40,000

Prepare a ratio analysis for the fiscal year ended Dec 31, 2011. Organize your analysis per the following outline:

(1) Liquidity
- Current ratio
- Quick ratio
Comments on liquidity

(2) Asset management
- Total Asset turnover
- Average collection period (ACP)
Comments on asset management

(3) Debt management
- Debt ratio
- Times interest earned
Comments on debt management

(4) Profitability
- Net profit margin
- Return on Assets (ROA)
- Return on Equity (ROE)
- Extended Du Pont equation
Comments on profitability to include your comments on the sources of ROE
revealed by the Du Pont equation

(5) Market value ratios
- PE ratio
- Market to book ratio

Comments on the market value ratios

For the purposes of this exercise, assume the following data for Joe's Fly-By-Night Oil:

Stock price on Dec 31, 2011...$50.00

Number of common shares outstanding on Dec 31, 2011...1000.

Solution Summary

The solution discusses using the income statement and balance sheet to prepare a ratio analysis.