98 #15 RATIO ANALYSIS 99 100 Grant Corp. Comparative Balance Sheet 12/31/2021 101 102 103 104 2021 2020 105 106 107 Assets Cash 108 30,000 50,000 20,000 10,000 400,000 Short-term investments Accounts receivable, net Inventory Property, plant & equipment, net Total assets 109 40,000 60,000 30,000 70,000 300,000 500,000 110 510,000 112 113 114 115 1116 Liabilities & Stockholders' equity Accounts payable Short-term notes payable Bonds payable Common stock Retained earnings Total liabilities & stockholders' equ 30,000 20,000 200,000 150,000 110,000 117 30,000 90,000 160,000 150,000 70,000 500,000 118 119 510,000 120 121 122 123 124 Grant Corp. Income Statement 12/31/2021 Sheet1 Grant Corp. Income Statement 12/31/2021 5 400,000 240,000 6 160,000 7 8 -9 Net sales Cost of goods sold Gross profit Expenses Operating expenses Interest expense Total expenses Income before income taxes Income tax expense 60,000 10,000 30 31 70,000 32 33 90,000 27,000 Net Income 63,000 34 35 36 37 38 39 40 ADDITIONAL INFORMTION Cash dividends were declared and paid during the year 23,000 Weighted average number of shares of common stock outstanding for the year Market value of common stock on December 31 $ 21 per share 20,000 41 142 143 144 INSTRUCTIONS: Using the financial statements and additional information, compute the following ratios for the company for 2021. Show all computations. You can use the formulas provided to do the ratio problem 1 CURRENT RATO 8 59 50 51 62 63 64 65 66 2 RETURN ON COMMON STOCKHOLDERS' EQUITY 3 PRICE EARNINGS RATIO 0 1 2 13 4 ACID TEST RATIO 24 25 26 37 98 99 00 01 202 203 204 5 ACCOUNTS RECEIVABLES TURNOVER 9 PAYOUT RATIO 4 5 6 10 RETURN ON ASSETS -7 8 19 52 212 213 6 TIMES INTEREST EARNED 214 215 216 217 218 219 220 221 222 223 224 225 7 PROFIT MARGIN 2261 227 228 229 2B0 8 DAYS IN INVENTORY 231 232 233 234 235 236 237 Ratio Formula Purpose or Use Liquidity Ratios 1. Current ratio Current assets Current liabilities Measures short-term debt-paying ability, Cash + Short-term 2. Acid-test (quick) ratio investments + Accounts receivable (net) Measures immediate short-term liquidity. Current liabilities 3. Accounts receivable Net credit sales Measures liquidity of accounts receivable. turnover Average net accounts receivable 4. Inventory turnover Cost of goods sold Average inventory Measures liquidity of inventory. Profitability Ratios 5. Profit margin Net income Measures net income generated by each Net sales dollar of sales. 6. Asset turnover Net sales Measures how efficiently assets are used Average total assets to generate sales. 7. Return on assets Net income Average total assets Measures overall profitability of assets. Net income - Preferred 8. Return on common dividends stockholders' equity Average common Measures profitability of owners' stockholders' equity investment. Net income - Preferred 9. Earnings per share dividends Measures net income earned on each (EPS) Weighted average common shares outstanding share of common stock. Market price 10. Price-earnings (P-E) per share Measures the ratio of the market price ratio Earnings per share per share to earnings per share. 11. Payout ratio Cash dividends declared on Measures percentage of earnings common stock distributed in the form of cash Net income dividends. Solvency Ratios 12. Debt to assets ratio Total liabilities Measures the percentage of total Total assets assets provided by creditors. Net income + Interest expense 13. Times interest earned + Income tax expense Measures ability to meet interest Interest expense payments as they come due