ACCOUNTING – Ex 17-2, 17-4

Exercise 17-12 Profitability analysis L.O. P3
Sanderson Company’s year-end balance sheets follow.

At December 31 2012 2011 2010
Assets
Cash $ 30,501 $ 35,307 $ 36,403
Accounts receivable, net 86,685 59,970 47,595
Merchandise inventory 105,753 77,645 51,708
Prepaid expenses 9,727 8,905 3,888
Plant assets, net 269,247 250,857 217,406

Total assets $ 501,913 $ 432,684 $ 357,000

Liabilities and Equity
Accounts payable $ 127,476 $ 74,586 $ 47,124
Long-term notes payable secured by
mortgages on plant assets 94,360 98,522 79,686
Common stock, $10 par value 162,500 162,500 162,500
Retained earnings 117,577 97,076 67,690

Total liabilities and equity $ 501,913 $ 432,684 $ 357,000

The company’s income statements for the years ended December 31, 2012 and 2011, follow.

For Year Ended December 31 2012 2011
Sales $ 652,487 $ 514,894
Cost of goods sold $ 398,017 $ 334,681
Other operating expenses 202,271 130,268
Interest expense 11,092 11,843
Income taxes 8,482 7,723

Total costs and expenses 619,862 484,515

Net income $ 32,625 $ 30,379

Earnings per share $ 2.01 $ 1.87

Additional information about the company follows.

Common stock market price, December 31, 2012 $30.00
Common stock market price, December 31, 2011 28.00
Annual cash dividends per share in 2012 0.32
Annual cash dividends per share in 2011 0.16

To help evaluate the company’s profitability, compute the following ratios for 2012 and 2011:

(1) Return on common stockholders’ equity. (Do not round intermediate calculations and round your final answers to 1 decimal place. Omit the “%” sign in your response.)

Return on common shareholders equity
2012 %
2011 %

(2) Price-earnings ratio on December 31. (Round your answers to 1 decimal place.)

Price-earnings ratio
2012
2011

(3) Dividend yield. (Round your answers to 1 decimal place. Omit the “%” sign in your response.)

Dividend Yield
2012 %
2011 %

Problem 17-4A Calculation of financial statement ratios L.O. P3
Selected year-end financial statements of McCord Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31, 2010, were inventory, $50,900; total assets, $259,400; common stock, $90,000; and retained earnings, $52,348.)

McCORD CORPORATION
Income Statement
For Year Ended December 31, 2011
Sales $ 454,600
Cost of goods sold 297,450

Gross profit 157,150
Operating expenses 98,800
Interest expense 4,300

Income before taxes 54,050
Income taxes 21,774

Net income $ 32,276

McCORD CORPORATION
Balance Sheet
December 31, 2011
Assets Liabilities and Equity
Cash $ 12,000 Accounts payable $ 23,500
Short-term investments 9,200 Accrued wages payable 4,000
Accounts receivable, net 30,000 Income taxes payable 3,700
Notes receivable (trade)* 5,500 Long-term note payable, secured
Merchandise inventory 34,150 by mortgage on plant assets 72,400
Prepaid expenses 2,500 Common stock 90,000
Plant assets, net 147,300 Retained earnings 47,050

Total assets $ 240,650 Total liabilities and equity $ 240,650

* These are short-term notes receivable arising from customer (trade) sales.

Required:
Compute the following. (Use 365 days a year. Do not round intermediate calculations and round your final answers to 1 decimal place. Omit the “%” sign in your response):

(1) Current ratio to
(2) Acid-test ratio to
(3) Days’ sales uncollected (including note) days
(4) Inventory turnover times
(5) Days’ sales in inventory days
(6) Debt-to-equity ratio to
(7) Times interest earned times
(8) Profit margin ratio %
(9) Total asset turnover times
(10) Return on total assets %
(11) Return on common stockholders’ equity %