Framework for the Preparation and Presentation of Financial Statements shareholders Drummond has no preferred shares, so profit is equal to the profit available to common Gay Calculate the (1) current, (2) debt to total assets. (3) earnings per share, and (4) price- earnings ratios for each year. () Based on the ratios calculated in part (a), state whether there was an improvement or deterioration in liquidity, solvency, and profitability for Drummond in 2015. Action Plan Use the formula for the current ratio: current assets + current liabilities. Use the formula for debt to total assets: total abilities + total assets Use the formula for earnings per share: profit available to common shareholders + weighted average number of common shares. Understand that higher is better for liquidity and profitability ratios and lower is better for certain solvency ratios, like debt to total assets. Solution (a 2015 2014 Comparison 1. Current ratio $72,000 - $40.000 = $60,800 - $38,000 Improved 1.8:1 1.6:1 2. Debt to total $180,000+ $400,000 $150,000 - $341.000 Deteriorated assets ratio 45.0% 44.0% 3. Earnings per $90,000+ 90,000 $40,000 + 50,000 = Improved share $1.00 4. Price-earnings $12+ $1 = 12 times $8 + $0.80 - 10 times Improved ratio $0.80 (6) Liquidity: The current ratio increased from 1.6:1 in 2014 to 1.8:1 in 2015. This would be viewed as an improvement, depending on how the composition of its current assets (such as receivables and inventories) changed. Los babe Solvency: The debt to total assets ratio increased from 44% in 2014 to 45% in 2015. This would be viewed as a deterioration as the company has a higher debt, as a percentage of its assets, to repay in the future. Profitability: Both the earnings per share and price-earnings ratios increased between 2014 and 2015. Both would be viewed as an improvement. Investors are viewing Drummond's potential to generate future profits favourably, as indicated by the price- earnings ratio. the navigator Related Exercise Material: BE2-5, BE2-6, BE2-7, E2-6, E2-7, and E2-8. Framework for the Preparation and Drummond's potential to generate future profits favourably, as indicated by the price- Drummond has no preferred shares, so profit is equal to the profit available to common shareholders. (a) Calculate the (1) current, (2) debt to total assets, (3) earnings per share, and (4) price- earnings ratios for each year. (b) Based on the ratios calculated in part (a), state whether there was an improvement or deterioration in liquidity, solvency, and profitability for Drummond in 2015. Action Plan Use the formula for the current ratio: current assets current liabilities. Use the formula for debt to total assets: total liabilities + total assets. Use the formula for earnings per share: profit available to common shareholders - weighted average number of common shares. Understand that higher is better for liquidity and profitability ratios and lower is better for certain solvency ratios, like debt to total assets. Solution (a) 2015 2014 Comparison 1. Current ratio $ 72,000+ $40,000 $60,800 - $38,000 Improved 1.8:1 1.6:1 2. Debt to total $180,000+ $400,000 = $150,000 - $341,000 = Deteriorated assets ratio 45.096 44.0% 3. Earnings per $90,000 - 90.000 = $40,000 = 50,000 = Improved share $1.00 $0.80 4. Price-earnings $12 - $1 = 12 times $8 + $0.80 = 10 times Improved ratio (b) Liquidity: The current ratio increased from 1.6:1 in 2014 to 1.8:1 in 2015. This would be viewed as an improvement, depending on how the composition of its current assets (such as receivables and inventories) changed. Solvency: The debt to total assets ratio increased from 44% in 2014 to 45% in 2015. This would be viewed as a deterioration as the company has a higher debt, as a percentage of its assets, to repay in the future. Profitability: Both the earnings per share and price-earnings ratios increased between 2014 and 2015. Both would be viewed as an improvement. Investors are viewing earnings ratio. Related Exercise Material: BE2-5, BE2-6, BE2-7, E2-6, E2-7, and E2-8. the navigator Tu Framework for the Preparation and Presentation of Financial Statements shareholders Drummond has no preferred shares, so profit is equal to the profit available to common Gay Calculate the (1) current, (2) debt to total assets. (3) earnings per share, and (4) price- earnings ratios for each year. () Based on the ratios calculated in part (a), state whether there was an improvement or deterioration in liquidity, solvency, and profitability for Drummond in 2015. Action Plan Use the formula for the current ratio: current assets + current liabilities. Use the formula for debt to total assets: total abilities + total assets Use the formula for earnings per share: profit available to common shareholders + weighted average number of common shares. Understand that higher is better for liquidity and profitability ratios and lower is better for certain solvency ratios, like debt to total assets. Solution (a 2015 2014 Comparison 1. Current ratio $72,000 - $40.000 = $60,800 - $38,000 Improved 1.8:1 1.6:1 2. Debt to total $180,000+ $400,000 $150,000 - $341.000 Deteriorated assets ratio 45.0% 44.0% 3. Earnings per $90,000+ 90,000 $40,000 + 50,000 = Improved share $1.00 4. Price-earnings $12+ $1 = 12 times $8 + $0.80 - 10 times Improved ratio $0.80 (6) Liquidity: The current ratio increased from 1.6:1 in 2014 to 1.8:1 in 2015. This would be viewed as an improvement, depending on how the composition of its current assets (such as receivables and inventories) changed. Los babe Solvency: The debt to total assets ratio increased from 44% in 2014 to 45% in 2015. This would be viewed as a deterioration as the company has a higher debt, as a percentage of its assets, to repay in the future. Profitability: Both the earnings per share and price-earnings ratios increased between 2014 and 2015. Both would be viewed as an improvement. Investors are viewing Drummond's potential to generate future profits favourably, as indicated by the price- earnings ratio. the navigator Related Exercise Material: BE2-5, BE2-6, BE2-7, E2-6, E2-7, and E2-8. Framework for the Preparation and Drummond's potential to generate future profits favourably, as indicated by the price- Drummond has no preferred shares, so profit is equal to the profit available to common shareholders. (a) Calculate the (1) current, (2) debt to total assets, (3) earnings per share, and (4) price- earnings ratios for each year. (b) Based on the ratios calculated in part (a), state whether there was an improvement or deterioration in liquidity, solvency, and profitability for Drummond in 2015. Action Plan Use the formula for the current ratio: current assets current liabilities. Use the formula for debt to total assets: total liabilities + total assets. Use the formula for earnings per share: profit available to common shareholders - weighted average number of common shares. Understand that higher is better for liquidity and profitability ratios and lower is better for certain solvency ratios, like debt to total assets. Solution (a) 2015 2014 Comparison 1. Current ratio $ 72,000+ $40,000 $60,800 - $38,000 Improved 1.8:1 1.6:1 2. Debt to total $180,000+ $400,000 = $150,000 - $341,000 = Deteriorated assets ratio 45.096 44.0% 3. Earnings per $90,000 - 90.000 = $40,000 = 50,000 = Improved share $1.00 $0.80 4. Price-earnings $12 - $1 = 12 times $8 + $0.80 = 10 times Improved ratio (b) Liquidity: The current ratio increased from 1.6:1 in 2014 to 1.8:1 in 2015. This would be viewed as an improvement, depending on how the composition of its current assets (such as receivables and inventories) changed. Solvency: The debt to total assets ratio increased from 44% in 2014 to 45% in 2015. This would be viewed as a deterioration as the company has a higher debt, as a percentage of its assets, to repay in the future. Profitability: Both the earnings per share and price-earnings ratios increased between 2014 and 2015. Both would be viewed as an improvement. Investors are viewing earnings ratio. Related Exercise Material: BE2-5, BE2-6, BE2-7, E2-6, E2-7, and E2-8. the navigator Tu