Financial Statements Analysis Case Study Rainbow Paint Co.'s comparative financial statements for the years ending December 31, 2010 and 2009, are as follows. The market price of Rainbow Paint Co.'s common stock was $30 on December 31, 2009, and $25 on December 31, 2010. Rainbow Paint Co. Comparative Income Statement For the Years Ended December 31, 2010 and 2009 2010 2009 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 5 688,000 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, 2010 and 2009 2010 2009 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, 2010 and 2009 Dec. 31, Dec. 31, 2010 2009 Assets Current assets: Cash $ 175,000 $ 125,000 Temporary investments . 150,000 50,000 Accounts receivable (net) 425,000 325,000 Inventories 720,000 180,000 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 2013 . $ 410,000 Bonds payable, 8%, due 2016 . 800,000 $ 800,000 Total long-term liabilities . . . . $1,210,000 $ 800,000 Total liabilities . . $1,450,000 . . . + $1,960,000 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 2010: 1. Working capital 2. Current ratio 3. Quick ratio 4. Accounts receivable turnover 5. Number of days' sales in receivables 6. Inventory turnover Value 50 Points 7. Number of days' sales in inventory 3. Ratio of fixed assets to long-term liabilities 9. Ratio of liabilities to stockholders' equity 10. Number of times interest charges are earned