1. Please, consider the PRUFROCK CORPORATION and calculate the common financial ratios for the year 2019 assuming that the Balance Sheet as of December 31 2019 and 2020 would be the one presented in Table 3.2. 2. Select five ratios and explain their significance for understanding the financial situation of the corporation. TABLE 3.1 PRUFROCK CORPORATION Balance Sheets as of December 31, 2018 and 2019, ($ In millons) 2018 2019 $ 84 165 Assets Current assets Cash Accounts recevable Inventory Total Fixed assets Net plant and equipment Total assets 393 $ 642 $ 708 $2,922 $2,731 $3,373 $3,620 $ 312 Llabilities and Owners' Equity Current labilitles Accounts payable Notes payable Total Long-term debt Owners' equity Common stock and pald-in surplus Retained earnings 231 $ 543 $ 531 $ 344 204 $ 548 $ 457 $ 500 1,799 $2,299 Total $ 510 2,115 $2,625 $3,630 Total llabilities and owners' equity $3,373 TABLE 3.2 PRUFROCK CORPORATION Common-Size Balance Sheets December 31, 2018 and 2019 2018 2019 Change 2.5% + 4.9 + Assets Current assets Cash Accounts receivable Inventory Total Fixed assets Net plant and equipment Total assets 2.7% 5.2 11.6 19.5% 2% .3 0 .5% + + + 11.7 19.0% + + 81.0% 100.0% 80.5% 100.0% 0% Liabilities and Owners' Equity Current liabilities Accounts payable Notes payable Total Long-term debt Owners' equity Common stock and paid-in surplus Retained earnings Total Total liabilities and owners' equity 9.2% 6.8 16.1% 15.7% 9.5% 5.6 15.1% 12.6% + 2% 1.2 1.0% - 3.2% 14.8% 53.3 68.2% 100.0% 14.0% 58.3 72.3% 100.0% - .8% + 4.9 + 4.2% 0% TABLE 3.3 PRUFROCK CORPORATION 2019 Income Statement ($ in millions) Sales Cost of goods sold Depreciation Earnings before interest and taxes Interest paid Taxable income Taxes (21%) Net income Dividends Addition to retained earnings $2,361 1,344 276 $ 741 141 $ 600 126 $ 474 $158 316 54 PART 2 Understanding Financial Statements and Cash Flow TABLE 3.4 PRUFROCK CORPORATION Common-Size Income Statement 2019 100.0% 56.9 11.7 31.4% 6.0 Sales Cost of goods sold Depreciation Earnings before interest and taxes Interest paid Taxable income Taxes (21%) Net income Dividends Addition to retained earnings 25.4% 5.3 20.1% 6.7% 13.4 Balance Sheet as of December 31 2019 and 2020 Year 2020 Assets Current assets Cash Accounts receivable Inventory Total Fixed assets Net plant and equipment Total assets 110 220 460 790 3300 4090 Liabilities and Owners Equity Current liabilities Accounts payables Notes payable Total 360 270 630 Long term debt 600 Owners' equity Common stock and Paid-in surplus Retaining earnings Total 700 2160 2860 Total liabilities and owners' equity 4090 TABLE 3.5 Common financial ratios 1. 365 days Days' sales in recevables = pa Recelvables turnover Short-term solvency, or liquidity, ratlos Current assets Current ratio = Current llabilities 365 days Days' costs In payables = Payables turnover Current assets - Inventory Quick ratio = Current llabllitles Sales Total asset turnover = Total assets Cash Cash ratio = Current Ilabilities Capltal Intensity - Total assets Sales IV. Profitabillty ratios II. Long-term solvency, or financial leverage, ratios Total assets - Total equity Total debt ratio = - Total assets Profit margin = Net Income Sales Debt-equity ratlo = Total debt/Total equity Equity multipller = Total assests/Total equlty Return on assets (R Net Income Total assets EBIT Times Interest earned ratlo = Interest Return on equity (ROE) = Total equlty Net Income Cash coverage ratlo = EBIT + Depreciation Interest ROF - Net Income Sales Sales Assets Assets Equity V. Market value ratios III. Asset utilization, or turnover, ratios Cost of goods sold Inventory turnover = Inventory 365 days Days' sales In Inventory Inventory turnover Price-earnings ratio = Price per share Earnings per share Price per share Price-sales ratio = a Sales per share Market value per share Market-to-book ratio =- Book value per share Sales Recelvables turnover = Acco " Accounts recelvable Cost of goods sold Payables turnover = Ace Accounts payable Enterprise value EBITDA ratlo == EBITDA 1. Please, consider the PRUFROCK CORPORATION and calculate the common financial ratios for the year 2019 assuming that the Balance Sheet as of December 31 2019 and 2020 would be the one presented in Table 3.2. 2. Select five ratios and explain their significance for understanding the financial situation of the corporation. TABLE 3.1 PRUFROCK CORPORATION Balance Sheets as of December 31, 2018 and 2019, ($ In millons) 2018 2019 $ 84 165 Assets Current assets Cash Accounts recevable Inventory Total Fixed assets Net plant and equipment Total assets 393 $ 642 $ 708 $2,922 $2,731 $3,373 $3,620 $ 312 Llabilities and Owners' Equity Current labilitles Accounts payable Notes payable Total Long-term debt Owners' equity Common stock and pald-in surplus Retained earnings 231 $ 543 $ 531 $ 344 204 $ 548 $ 457 $ 500 1,799 $2,299 Total $ 510 2,115 $2,625 $3,630 Total llabilities and owners' equity $3,373 TABLE 3.2 PRUFROCK CORPORATION Common-Size Balance Sheets December 31, 2018 and 2019 2018 2019 Change 2.5% + 4.9 + Assets Current assets Cash Accounts receivable Inventory Total Fixed assets Net plant and equipment Total assets 2.7% 5.2 11.6 19.5% 2% .3 0 .5% + + + 11.7 19.0% + + 81.0% 100.0% 80.5% 100.0% 0% Liabilities and Owners' Equity Current liabilities Accounts payable Notes payable Total Long-term debt Owners' equity Common stock and paid-in surplus Retained earnings Total Total liabilities and owners' equity 9.2% 6.8 16.1% 15.7% 9.5% 5.6 15.1% 12.6% + 2% 1.2 1.0% - 3.2% 14.8% 53.3 68.2% 100.0% 14.0% 58.3 72.3% 100.0% - .8% + 4.9 + 4.2% 0% TABLE 3.3 PRUFROCK CORPORATION 2019 Income Statement ($ in millions) Sales Cost of goods sold Depreciation Earnings before interest and taxes Interest paid Taxable income Taxes (21%) Net income Dividends Addition to retained earnings $2,361 1,344 276 $ 741 141 $ 600 126 $ 474 $158 316 54 PART 2 Understanding Financial Statements and Cash Flow TABLE 3.4 PRUFROCK CORPORATION Common-Size Income Statement 2019 100.0% 56.9 11.7 31.4% 6.0 Sales Cost of goods sold Depreciation Earnings before interest and taxes Interest paid Taxable income Taxes (21%) Net income Dividends Addition to retained earnings 25.4% 5.3 20.1% 6.7% 13.4 Balance Sheet as of December 31 2019 and 2020 Year 2020 Assets Current assets Cash Accounts receivable Inventory Total Fixed assets Net plant and equipment Total assets 110 220 460 790 3300 4090 Liabilities and Owners Equity Current liabilities Accounts payables Notes payable Total 360 270 630 Long term debt 600 Owners' equity Common stock and Paid-in surplus Retaining earnings Total 700 2160 2860 Total liabilities and owners' equity 4090 TABLE 3.5 Common financial ratios 1. 365 days Days' sales in recevables = pa Recelvables turnover Short-term solvency, or liquidity, ratlos Current assets Current ratio = Current llabilities 365 days Days' costs In payables = Payables turnover Current assets - Inventory Quick ratio = Current llabllitles Sales Total asset turnover = Total assets Cash Cash ratio = Current Ilabilities Capltal Intensity - Total assets Sales IV. Profitabillty ratios II. Long-term solvency, or financial leverage, ratios Total assets - Total equity Total debt ratio = - Total assets Profit margin = Net Income Sales Debt-equity ratlo = Total debt/Total equity Equity multipller = Total assests/Total equlty Return on assets (R Net Income Total assets EBIT Times Interest earned ratlo = Interest Return on equity (ROE) = Total equlty Net Income Cash coverage ratlo = EBIT + Depreciation Interest ROF - Net Income Sales Sales Assets Assets Equity V. Market value ratios III. Asset utilization, or turnover, ratios Cost of goods sold Inventory turnover = Inventory 365 days Days' sales In Inventory Inventory turnover Price-earnings ratio = Price per share Earnings per share Price per share Price-sales ratio = a Sales per share Market value per share Market-to-book ratio =- Book value per share Sales Recelvables turnover = Acco " Accounts recelvable Cost of goods sold Payables turnover = Ace Accounts payable Enterprise value EBITDA ratlo == EBITDA