The following financial statements apply to Karl Company:
Required
Calculate the following ratios for 2018 and 2019. When data limitations prohibit computing averages, use year-end balances in your calculations. Round computations to two decimal points.
a. Net margin.
b. Return on investment.
c. Return on equity.
d. Earnings per share.
e. Price-earnings ratio (market prices at the end of 2018 and 2019 were $11.88 and $9.54, respectively).
f. Book value per share of common stock.
g. Times interest earned.
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h. Working capital.
i. Current ratio.
j. Quick (acid-test) ratio.
k. Accounts receivable turnover.
l. Inventory turnover.
m. Debt to equity ratio.
n. Debt to assets ratio.
SOLUTION
2019
2018
a.
Net income Net sales
$72,000 $420,000
$54,000 $350,000
b.
Net income Avg. total assets
$72,000 $512,000
$54,000 $488,000*
c.
Net income Avg. total stockholders' equity
$72,000 $253,000
$54,000 $216,000*
d.
Net income Avg. common shares outstanding
$72,000 100,000
$54,000 100,000
e.
Market price EPS
$9.54 $0.72
$11.88 $0.54
f.
Stockholders' equity – preferred rights Average common shares outstanding
$290,000 100,000
$216,000 100,000
g.
Income before taxes + Interest Interest
$114,000*+$6,000 $6,000
$90,000 + $6,000 $ 6,000
h.
Current assets – Current liabilities
$286,000 – $114,000 = $172,000
$278,000 – $138,000 = $140,000
i.
Current assets Current liabilities
$286,000 $114,000
$278,000 $138,000
j.
Quick assets Current liabilities
$80,000 $114,000
$82,000 $138,000
k.
Net sales Average accounts receivable
$420,000 $67,000
$350,000 $64,000*
l.
Cost of goods sold Average inventory
$252,000 $196,000
$206,000 $192,000*
m.
Total liabilities Total stockholders’ equity
$246,000 $290,000
$272,000 $216,000
n.
Total liabilities Total assets
$246,000 $536,000
$272,000 $488,000
*Averages cannot be computed from the data provided in the problem.