Please refer to Case 4.30 on pages 134?135 for the financial statement data needed for the analysis of this case. You should also review the solution to Case 4.30, provided by your instructor, before attempting to complete this case.

Required:

a. Case 4.30 presents the 2019 income statement and balance sheet for Gerrard Construction Co. What other financial statements are required? What information would these statements communicate that could not be determined by reviewing only the income statement and balance sheet?

b. Briefly describe the note disclosures that should be provided by Gerrard Construction Co., and explain why note disclosures are considered an integral part of the financial statements.

c. Assume that the balance of ?Accounts Receivable, net? at December 31, 2018, was $24,600. Calculate the following activity measures for Gerrard Construction Co. for the year ended December 31, 2019:

1. Accounts receivable turnover.

2. Number of days? sales in accounts receivable.

d. Calculate the following financial leverage measures for Gerrard Construction Co. at December 31, 2019:

1. Debt ratio.

2. Debt/equity ratio.

e. Gerrard Construction Co. wishes to lease some new earthmoving equipment from Caterpillar on a long-term basis. What impact (increase, decrease, or no effect) would a financing lease of $12 million have on the company?s debt ratio and debt/equity ratio? (Note: These items were computed in part d and do not need to be recomputed for this requirement.)

f. Review the answer to Case 4.30 part i at this time. Assume that Gerrard Construction Co. had 4,800,000 shares of $1 par value common stock outstanding throughout 2019, and that the market price per share of common stock at December 31, 2019, was $57.50. Calculate the following profitability measures for the year ended December 31, 2019:

1. Earnings per share of common stock.

2. Price/earnings ratio.

3. Dividend yield.

4. Dividend payout ratio.

Case 4.30

Gerrard Construction Co. is an excavation contractor. The following summarized data (in thousands) are taken from the December 31, 2019, financial statements:

At December 31, 2018, total assets were $246,000 and total stockholders? equity was $97,800. There were no changes in notes payable or paid-in capital during 2019.

Transcribed Image Text:

For the Year Ended December 31, 2019: $ 96,600 Net revenues 34,200 Cost of services provided . Depreciation expense 19,500 $ 42,900 Operating income Interest expense 11,400 Income tax expense 9,600 $ 21,900 Net income At December 31, 2019: Assets Cash and short-term investments 8,400 Accounts receivable, net 29,400 Property, plant, and equipment, net 232,200 Total assets $270,000 Liabilities and Stockholders' Equity $ 4,500 Accounts payable ... Income taxes payable Notes payable (long term). 4,800 142,500 Paid-in capital ..... 30,000 Retained earnings 88,200 Total liabilities and stockholders' equity $270,000