Exercise #5: Measures of solvency and profitability

The comparative financial statements of Bettancourt Inc. are as follows. The market price of Bettancourt Inc. common stock was $71.25 on December 31, 2016.

Bettancourt Inc.

Comparative Retained Earnings Statement

For the years Ended December 31, 2016 and 2015

2016

2015

Retained earnings, January 1..

$2,655,000

$2,400,000

Add net income for year.

300,000

280,000

Total.

$2,955,000

$2,680,000

Deduct dividends:

On preferred stock.

$15,000

$15,000

On common stock..

10,000

10,000

Total..

$25,000

25,000

Retained earnings, December 31..

$2,930,000

$2,655,000

Bettancourt Inc.

Comparative Income Statement

For the years Ended December 31, 2016 and 2015

2016

2015

Sales

$1,200,000

$1,000,000

Cost of goods sold

500,000

475,000

Gross profit..

$700,000

$525,000

Selling expenses..

$240,000

$200,000

Administrative expenses..

180,000

150,000

Total operating expenses.

$420,000

$350,000

Income from operations

$280,000

$175,000

OtherIncome..

166,000

225,000

$446,000

$400,000

Other expense (interest)

66,000

60,000

Income before income tax.

$380,000

$340,000

Income tax expense..

80,000

60,000

Net income

$300,000

$280,000

Bettancourt Inc.

Comparative Balance Sheet

December 31, 2016 and 2015

Dec 31,

2016

Dec 31,

2015

Assets

Current Assets:

Cash..

$450,000

$400,000

Marketable securities..

300,000

260,000

Accounts receivable (net)

130,000

110,000

Inventories.

67,000

58,000

Prepaid expenses..

153,000

139,000

Total current assets

$1,100,000

$967,000

Long-term investments

2,350,000

2,200,000

Property, plant, and equipment (net)

1,320,000

1,188,000

Total assets

$4,770,000

$4,355,000

Liabilities

Current liabilities..

$440,000

$400,000

Long term liabilities:

Mortgage note payable, 8%, due 2021

$100,000

$0

Bonds payable, 5%, due 2017

1,000,000

1,000,000

Total long-term liabilities..

$1,100,000

$1,000,000

Total liabilities

$1,540,000

$1,400,000

Stockholders Equity

Preferred $0.75 stock, $10 par

$200,000

$200,000

Common stock, $10 par..

100,000

100,000

Retained earnings

2,930,000

2,655,000

Total stockholders equity.

$3,230,000

$2,955,000

Total liabilities and stockholders equity..

$4,770,000

$4,355,000

Instructions:

Determine the following measures for 2016, rounding to one decimal place, and show calculations:

1.Working capital

2.Current ratio

3.Quick ratio

4.Accounts receivable turnover

5.Number of days sales in receivables

6.Inventory turnover

7.Number of days sales in inventory

8.Ratio of fixed assets to long-term liabilities

9.Ratio of liabilities to stockholders equity

10.Number of times interest charges are earned

11.Number of times preferred dividends are earned

12.Ratio of sales to assets

13.Rate earned on total assets

14.Rate earned on stockholders equity

15.Rate earned on common stockholders equity

16.Earnings per share on common stock

17.Price-earnings ratio

18.Dividends per share of common stock

Dividend yield