Comparative financial statement data of Stow Optical Mart follow:

Other information:

1. Market price of Stow Optical Mart common stock: $122.91 at December 31, 2018, and $165.75 at December 31, 2017

2. Common shares outstanding: 13,000 during 2018 and 8,000 during 2017

3. All sales on credit

4. Cash dividends paid per share: $2.75 per share in 2018 and $4.00 in 2017

Requirements

1. Calculate the following ratios for 2018 and 2017:

a. Current ratio

b. Quick (acid-test) ratio

c. Receivables turnover and days’ sales outstanding (DSO)—round to the nearest whole day

d. Inventory turnover and days’ inventory outstanding (DIO)—round to the nearest whole day

e. Accounts payable turnover and days’ payable outstanding (DPO)–use cost of goods sold

in the turnover ratio and round DPO to the nearest whole day

f. Cash conversion cycle (in days)

g. Times-interest-earned ratio

h. Return on assets—use DuPont Analysis

i. Return on common stockholders’ equity—use DuPont Analysis

j. Earnings per share of common stock

k. Price-earnings ratio

2. Decide whether (a) Stow Optical Mart’s financial position improved or deteriorated during 2018 and (b) whether the investment attractiveness of the company’s common stock appears to have increased or decreased from 2017 to 2018.

3. How will what you learned in this problem help you evaluate an investment?

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A1 Stow Optical Mart Comparative Income Statements Years Ended December 31, 2018 and 2017 2018 $ 686,000 382,000 304,000 132,000 172,000 38,000 134,000 40,000 $ 94,000 2017 $ 595,000 276,000 319,000 150,000 169,000 45,000 124,000 46,000 $ 78,000 2 3 Net sales 4 Cost of goods sold 5 Gross profit 6 Operating expenses 7 Income from operations 8 Interest expense 9 Income before income tax 10 Income tax expense 11 Net income 12 A1 Stow Optical Mart Comparative Balance Sheets December 31, 2018 and 2017 2018 2017 2016* 3 Current assets: Cash Current receivables, net Inventories $ 42,000 212,000 299,000 12,000 565,000 287,000 $852,000 $ 82,000 155,000 288,000 27,000 552,000 275,000 $827,000 $132,000 180,000 6. Prepaid expenses 8. Total current assets 9 Property, plant, and equipment, net 10 Total assets 11 704,000 12 Accounts payable 13 Other current liabilities 14 Total current liabilities 15 Long-term liabilities 16 Total liabilities 17 Common stockholders' equity, no par 18 Total liabilities and stockholders' equity 19 $140,000 137,000 277,000 244,000 521,000 331,000 $852,000 $114,000 176,000 290,000 234,000 524,000 303,000 $827,000 108,000 195,000 *Selected 2016 amounts.