Financial Statement Analysis Rainbow Paint Co.'s comparative financial statements for the years ending December 31, 2006 and 2005 are as follows. The market price of Rainbow Paint Co.'s common stock was $30 on December 31, 1999 and $25 on December 31, 2006. Rainbow Paint Co. Comparative Income Statement For the Years Ended December 31, 2006 and 2005 2006 2005 Sales $ 5,125,000 $ 3,257,600 Sales returns and allowances 125,000 57,600 Net sales $ 5,000,000 $ 3,200,000 Cost of goods sold 3,400,000 2,080,000 Gross profit $ 1,600,000 $ 1,120,000 Selling expenses $ 650,000 $ 464,000 Administrative expenses 325,000 224,000 Total operating expenses $ 975,000 $ 688,000 Income from operations $ 625,000 $ 432,000 Other income 25,000 19,200 $ 650,000 $ 451,200 Other expense (interest) 105,000 64,000 Income before income tax $ 545,000 $ 387,200 Income tax expense 300,000 176,000 Net income $ 245,000 $ 211,200 Rainbow Paint Co. Comparative Retained Earnings Statement For the Years Ended December 31, 2006 and 2005 2006 2005 Retained earnings, January 1 $ 723,000 $ 581,800 Add net income for year 245,000 211,200 Total $ 968,000 $ 793,000 Deduct dividends: On preferred stock $ 40,000 $ 40,000 On common stock 45,000 30,000 Total $ 85,000 $ 70,000 Retained earnings, December 31 $ 883,000 $ 723,000 Rainbow Paint Co. Comparative Balance Sheet December 31, 2006 and 2005 Assets 2006 2005 Current assets: Cash $ 175,000 $ 125,000 Marketable securities 150,000 50,000 Accounts receivable (net) 425,000 325,000 Inventories 720,000 480,000 Prepaid expenses 30,000 20,000 Total current assets $ 1,500,000 $ 1,000,000 Long-term investments 250,000 225,000 Property, plant, and equipment (net) 2,093,000 1,948,000 Total assets $ 3,843,000 $ 3,173,000 Liabilities Current liabilities $ 750,000 $ 650,000 Long-term liabilities: Mortgage note payable, 10%, due 2009 $ 410,000 - Bonds payable, 8%, due 2012 800,000 $ 800,000 Total long-term liabilities $ 1,210,000 $ 800,000 Total liabilities $ 1,960,000 $ 1,450,000 Stockholders' Equity Preferred 8% stock, $100 par $ 500,000 $ 500,000 Common stock, $10 par 500,000 500,000 Retained earnings 883,000 723,000 Total stockholders' equity $ 1,883,000 $ 1,723,000 Total liabilities and stockholders' equity $ 3,843,000 $ 3,173,000 Instructions Determine the following measures for 2006: 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 earned 11.Number of times preferred dividends earned 12.Ratio of net sales to assets 13.Rate earned on total assets 14.Rate earned on stockholders' equity 15.Rate earned on common stockholders' equity

Review Problem Financial Statement Analysis Rainbow Paint Co.'s comparative financial statements for the years ending December 31, 2006 and 2005 are as follows. The market price of Rainbow Paint Co.'s common stock was $30 on December 31, 1999 and $25 on December 31, 2006. Rainbow Paint Co. Comparative Income Statement For the Years Ended December 31, 2006 and 2005 2006 2005 $ 5,125,000 $ 3,257,600 125,000 57,600 $ 5,000,000 $ 3,200,000 3,400,000 2,080,000 $ 1,600,000 $ 1,120,000 $ 650,000 $ 464,000 325,000 224,000 Total operating expenses $ 975,000 $ 688,000 Income from operations $ 625,000 $ 432,000 25,000 19,200 $ 650,000 $ 451,200 105,000 64,000 $ 545,000 $ 387,200 300,000 176,000 $ 245,000 $ 211,200 Sales Sales returns and allowances Net sales Cost of goods sold Gross profit Selling expenses Administrative expenses Other income Other expense (interest) Income before income tax Income tax expense Net income Rainbow Paint Co. Comparative Retained Earnings Statement For the Years Ended December 31, 2006 and 2005 2006 Retained earnings, January 1 2005 Total $ 581,800 245,000 211,200 $ 968,000 Add net income for year $ 723,000 $ 793,000 $ 40,000 $ 40,000 45,000 30,000 $ 85,000 $ 70,000 Deduct dividends: On preferred stock On common stock Total Retained earnings, December 31 $ 883,000 $ 723,000 Rainbow Paint Co. Comparative Balance Sheet December 31, 2006 and 2005 Assets 2006 2005 Current assets: Cash $ 175,000 $ 125,000 Marketable securities 150,000 50,000 Accounts receivable (net) 425,000 325,000 Inventories 720,000 480,000 30,000 20,000 $ 1,500,000 $ 1,000,000 250,000 225,000 2,093,000 1,948,000 $ 3,843,000 $ 3,173,000 $ 750,000 $ 650,000 Prepaid expenses Total current assets Long-term investments Property, plant, and equipment (net) Total assets Liabilities Current liabilities Long-term liabilities: Mortgage note payable, 10%, due 2009 Bonds payable, 8%, due 2012 $ 410,000 - 800,000 $ 800,000 $ 1,210,000 $ 800,000 $ 1,960,000 $ 1,450,000 $ 500,000 $ 500,000 Common stock, $10 par 500,000 500,000 Retained earnings 883,000 723,000 $ 1,883,000 $ 1,723,000 $ 3,843,000 $ 3,173,000 Total long-term liabilities Total liabilities Stockholders' Equity Preferred 8% stock, $100 par Total stockholders' equity Total liabilities and stockholders' equity Instructions Determine the following measures for 2006: 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 earned 11. Number of times preferred dividends earned 12. Ratio of net 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 19. Dividend yield