Chapter 2: Analysis of Financial Statements: Practice questions Al Hamra wholesale trade Company Balance sheet Art Accr. 22.00 STA Carver 2,000./12.193.12 Gases Pared A 19.10.200.00 Less Dent 30.12 1.100 Nowdate 170 Tualet M97.159.16.97 Laharis Equity Accopy.004.10 Notes pile 300.000 OR .. Car Lien 144.000.08 Lang 0.0 23:43 Clock 1.321.176.000 Heading 31% 1.90 195.269.59 Total Lities ERITA Income statement 19 Site STAM Cet of Good Sold 5.575.90 0.00 Ohrenpres 350.000319988 09.106 113.968) Den 16. Anas 12.01 20.011012 ringe TEND Kerger W IT Intense Formulae Current ratio Current assets / Current Liabilities Inv. turnover Sales / Inventories FA turnover Sales / Net fixed assets TA turnover Sales / Total assets Debt ratio = Total debt / Total assets TIE EBIT / Interest expense Profit margin -Net income / Sales Operating profit margin-EBIT / Sales ROA = Net income Total assets ROE Net income Total common equity -Price! Earnings per share ME - Mki price per share Book value per share DuPont Analysis ROE formula: ROE-(Profit margin) x (TA tumover) (Equity multiplier) ROE (NI/Sales) x (Sales TA) (TA Equity) Other data 2020 2019 No. of shares 250,000 100,000 EPS $2.20 $2.00 DPS $1.10 $1.20 Stock Price $15 $12 Question 2 1. Suppose that Spacex Company reported the following summary of financial statements for 2019-2020 and Industry ratio for 2020 as follows. A. Summary of income statement Items 2019 2020 Sales 645 685 Cost of goods sold 480 530 135 125 Net income 82.0 75.30 EBIT B. Summary of balance sheet Items 2019 2020 Inventory 65 86 Total current asset 318 347 Total fixed assets 374 386 Current liabilities 165 189 Long-term liabilities 268 220.69 Total shareholders' equity 259 323.31 C. 2020 Industry average ratios Ratios 2020 ratio Operating profit Margin 31% ROA 20% ROE 28% Current ratio 2.03 Debt to asset ratio 35.0% Total asset turnover ratio 1.79 times Inventory tumover ratio 13.1 times Required? A. Determine the ratios of the company comparable with the industry ratios listed in Table c above and interpret the results. Solution Ratio 2019 2020 Operating profit Margin (EBIT Sales) ROA (Net income Total Assets) ROE (Net income Total Equity) Current ratio (Total Current Asset/Total current liability) Debt to asset ratio total debe /total Asset) Total asset tumover ratio (Sales/Total Assets) Inventory turnover ratio (Sales / Inventory) 3 Chapter 2: Analysis of Financial Statements: Practice questions Al Hamra wholesale trade Company Balance sheet Art Accr. 22.00 STA Carver 2,000./12.193.12 Gases Pared A 19.10.200.00 Less Dent 30.12 1.100 Nowdate 170 Tualet M97.159.16.97 Laharis Equity Accopy.004.10 Notes pile 300.000 OR .. Car Lien 144.000.08 Lang 0.0 23:43 Clock 1.321.176.000 Heading 31% 1.90 195.269.59 Total Lities ERITA Income statement 19 Site STAM Cet of Good Sold 5.575.90 0.00 Ohrenpres 350.000319988 09.106 113.968) Den 16. Anas 12.01 20.011012 ringe TEND Kerger W IT Intense Formulae Current ratio Current assets / Current Liabilities Inv. turnover Sales / Inventories FA turnover Sales / Net fixed assets TA turnover Sales / Total assets Debt ratio = Total debt / Total assets TIE EBIT / Interest expense Profit margin -Net income / Sales Operating profit margin-EBIT / Sales ROA = Net income Total assets ROE Net income Total common equity -Price! Earnings per share ME - Mki price per share Book value per share DuPont Analysis ROE formula: ROE-(Profit margin) x (TA tumover) (Equity multiplier) ROE (NI/Sales) x (Sales TA) (TA Equity) Other data 2020 2019 No. of shares 250,000 100,000 EPS $2.20 $2.00 DPS $1.10 $1.20 Stock Price $15 $12 Question 2 1. Suppose that Spacex Company reported the following summary of financial statements for 2019-2020 and Industry ratio for 2020 as follows. A. Summary of income statement Items 2019 2020 Sales 645 685 Cost of goods sold 480 530 135 125 Net income 82.0 75.30 EBIT B. Summary of balance sheet Items 2019 2020 Inventory 65 86 Total current asset 318 347 Total fixed assets 374 386 Current liabilities 165 189 Long-term liabilities 268 220.69 Total shareholders' equity 259 323.31 C. 2020 Industry average ratios Ratios 2020 ratio Operating profit Margin 31% ROA 20% ROE 28% Current ratio 2.03 Debt to asset ratio 35.0% Total asset turnover ratio 1.79 times Inventory tumover ratio 13.1 times Required? A. Determine the ratios of the company comparable with the industry ratios listed in Table c above and interpret the results. Solution Ratio 2019 2020 Operating profit Margin (EBIT Sales) ROA (Net income Total Assets) ROE (Net income Total Equity) Current ratio (Total Current Asset/Total current liability) Debt to asset ratio total debe /total Asset) Total asset tumover ratio (Sales/Total Assets) Inventory turnover ratio (Sales / Inventory) 3