Ratio analysis over two years (Learning Objective 4)
Comparative financial statement data of Banfield DVDs Inc. follow.

Other Information 1. Market price of Banfield’s common stock: $92.80 at December 31, 2006, and $67.50 at December 31, 2005 2. Common shares outstanding: 15,000 during 2006 and 14,000 during 2005 3. All sales on credit Requirements 1. Compute the following ratios for 2006 and 2005:

a. Current ratio

b. Times-interest-earned ratio

c. Inventory turnover

d. Return on common stockholders’ equity

e. Earnings per share of common stock

f. Price/earnings ratio 2. Decide

(a) whether Banfield DVD’s ability to pay its debts and to sell inventory improved or deteriorated during 2006 and

(b) whether the investment attrac¬ tiveness of its common stock appears to have increased or decreased.

Transcribed Image Text:

BANFIELD DVDs, INC. Comparative Income Statement Years Ended December 31, 2006 and 2005 Net sales Cost of goods sold Gross profit Operating expenses Income from operations Interest expense Income before income tax Income tax expense Net income BANFIELD DVDS INC. 2006 2005 $667,000 $599,000 378,000 283,000 289,000 316,000 129,000 147,000 160,000 169,000 37,000 51,000 123,000 118,0001 34,000 53,000 $ 89,000 $65,000 Comparative Balance Sheet December 31, 2006 and 2005 2006 2005 2004" Current assets: Cash $ 37,000 $40,0001 Current receivables, net Inventories Prepaid expenses Total current assets Property, plant, and equipment, net Total assets Total current liabilities Long-term liabilities Total liabilities Preferred stock, 4% Common stockholders' equity, no par Total liabilities and stockholders' equity 208,000 151,000 $138,000 298,000 286,000 184,000 5,000 20,000 548,000 497,000 287,000 276,000 $835,000 $773,000 707,000 $286,000 $267,000 245,000 235,000 $31,000 502,000 50,000 50,000 308,000 221,000 198,000 $889,000 $773,000