12-44 Financial Ratios

(Alternate is 12-46.) This problem uses the same data as problem 12-43, but it can be solved independently. Price-Break and Low-Cost are both discount store chains. Condensed income statements and balance sheets for the two companies are shown in Exhibit 12-13. Amounts are in thousands.

Additional information follows:

Cash dividends per share: Price-Break, $2.10; Low-Cost, $1.50

Mprice per share: Price-Break, $50; Low-Cost, $35

Average shares outstanding for 20X9: Price-Break, 15 million; Low-Cost, 8 million

Compute the following ratios for both companies for 20X9: (a) current, (b) quick, (c) accounts receivable turnover, (d) inventory turnover, (e) total-debt-to-total-assets, (f) total-debt-to-total-equity, (g) ROE, (h) gross profit rate, (i) return on sales, (j) total asset turnover, (k) pretax return on assets, (l) EPS, (m) P-E, (n) dividend-yield, and (o) dividend-payout. Total debt includes all liabilities. Assume all sales are on credit.

Compare the liquidity, solvency, profitability, market price, and dividend ratios of Price-Break with those of Low-Cost

EXHIBIT 12-13 Financial Statements for Price-Break and Low-Cost

($ in thousands)

INCOME STATEMENTS

Price-Break Low-Cost

Year Ended December 31, 20X9

Sales $905,600 $491,750

Cost of sales 602,360 301,910

Gross profit 303,240 189,840

Operating expenses 184,130 147,160

Operating income 119,110 42,680

Other revenue (expense) (21,930 ) 6,270

Pretax income 97,180 48,950

Income tax expense 38,870 19,580

Net income $ 58,310 $ 29,370

BALANCE SHEETS

Price-Break Low-Cost

December 31 December 31

20X9 20X8 20X9 20X8

Assets

Current assets

Cash $ 9,100 $ 10,700 $ 8,200 $ 6,900

Marketable securities 8,300 8,300 4,100 3,800

Accounts receivable 36,700 37,100 21,300 20,500

Inventories 155,600 149,400 105,100 106,600

Prepaid expenses 17,100 16,900 8,800 8,400

Total current assets 226,800 222,400 147,500 146,200

Property and equipment, net 461,800 452,300 287,600 273,500

Other assets 14,700 13,900 28,600 27,100

Total assets $703,300 $688,600 $463,700 $446,800

Liabilities and stockholders equity

Liabilities

Current liabilities (summarized) $ 91,600 $ 93,700 $ 61,300 $ 58,800

Long-term debt 156,700 156,700 21,000 21,000

Total liabilities 248,300 250,400 82,300 79,800

Stockholders equity 455,000 438,200 381,400 367,000

Total liabilities and stockholders equity $703,300 $688,600 $463,700 $446,800