CP13-2 Analyzing Comparative Financial Statements Using Selected Ratios [LO 13-4, LO 13-5]

The comparative financial statements prepared at December 31 for Golden Corporation showed the following summarized data:

	Current			Previous
Income Statement
Sales revenue	$	210,000		$	189,000
Cost of goods sold		122,000			112,000
Gross profit		88,000			77,000
Operating expenses		59,300			55,200
Interest expense		3,300			3,200
Income before income taxes		25,400			18,600
Income tax expense		7,620			3,600
Net income	$	17,780		$	15,000
Balance Sheet
Cash	$	4,680		$	8,600
Accounts receivable (net)		25,000			26,000
Inventory		46,000			41,000
Property and equipment (net)		51,000			44,000
	$	126,680		$	119,600
Current liabilities	$	15,500		$	23,200
Note payable (long-term)		51,000			51,000
Common stock (par $5)		33,600			33,600
Additional paid-in capital		6,200			5,600
Retained earnings*		20,380			6,200
	$	126,680		$	119,600

*During the current year, cash dividends of $3,600 were declared and paid.

Required:

1-a.	Compute the gross profit percentage for the current and previous years. (Round your answers to 1 decimal place.)

1-b.

Are the current year results better, or worse, than those for the previous year?

	Better
	Worse

2-a.	Compute the net profit margin for the current and previous years. (Round your answers to 1 decimal place.)

2-b.

Are the current year results better, or worse, than those for the previous year?

	Better
	Worse

3-a.	Compute the earnings per share for the current and previous years.
	TIP: To calculate EPS, use the balance in Common Stock to determine the number of shares outstanding. Common Stock equals the par value per share times the number of shares. (Round your answers to 2 decimal places.)

3-b.

Are the current year results better, or worse, than those for the previous year?

	Better
	Worse

4-a.	Stockholders equity totaled $33,600 at the beginning of the previous year. Compute the return on equity (ROE) ratios for the current and previous years. (Round your answers to 1 decimal place.)

4-b.

Are the current year results better, or worse, than those for the previous year?

	Better
	Worse

5-a.	Net property and equipment totaled $38,000 at the beginning of the previous year. Compute the fixed asset turnover ratios for the current and previous years. (Round your answers to 2 decimal places.)

5-b.

Are the current year results better, or worse, than those for the previous year?

	Better
	Worse

6-a.	Compute the debt-to-assets ratios for the current and previous years. (Round your answers to 2 decimal places.)

6-b.

Is debt providing financing for a larger or smaller proportion of the companys asset growth?

	Larger Proportion
	Smaller Proportion

7-a.	Compute the times interest earned ratios for the current and previous years. (Round your answers to 1 decimal place.)

7-b.

Are the current year results better, or worse, than those for the previous year?

	Better
	Worse

8-a.	After Golden released its current years financial statements, the companys stock was trading at $36. After the release of its previous years financial statements, the companys stock price was $27 per share. Compute the P/E ratios for both years. (Round your intermediate calculations and final answers to 2 decimal places.)

8-b.

Does it appear that investors have become more (or less) optimistic about Goldens future success?

	More Optimistic
	Less Optimistic