Information below comes from the financial statements of Rosson Company. Rosson Company Income Statement Year 2 Year 1 $299,000 8,000 307,000 $246,000 9,000 255,000 Revenues: Net Sales Other Revenues Total Revenues Expenses: Cost of Goods Sold SG&A Expenses Interest Expense Income Tax Expense Total Expenses Income before Discontinued Operations Discontinued Operations Gain (net of tax) Net Income 172,000 44,000 4,000 31,000 251,000 56,000 9,000 $ 65,000 138,000 40,000 4,500 25,400 207,900 47,100 $ 47,100 Kosson Company Balance Sheet Year 2 Year 1 Assets: Current Assets: Cash Marketable Securities Accounts Receivable Inventories Prepaid Expenses Total Current Assets Plant and Equipment (net) Intangibles Total Assets $ 7,500 1,000 50,000 150.000 5,000 213,500 147,000 30,500 $391.000 $ 12,500 1,500 47,500 145,000 2,500 209,000 157,000 $366.000 Liabilities: Current Liabilities: Accounts Payable Other Accrued Liabilities Total Current Liabilities Bonds Payable Total Liabilities $58,000 25,000 83,000 90.000 $173,000 $ 79,500 22,500 102,000 100.000 $202,000 Stockholders' Equity: Common Stock ($5 par) Paid-In Capital in Excess of Par Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity 130,000 20,000 68.000 218.000 $391,000 130,000 20,000 14.000 164.000 $366,000 Common stock market price at year-end $14.00 $8.55 Required Perform the following analyses. If you have insufficient data to use averages in ratio computations, use year-end balances in the calculations. a. Perform horizontal analysis of the income statement and balance sheet data. Use Year 1 as the base year. b. Perform vertical analysis of the income statement and balance sheet data for Year 1 and Year 2. Use sales revenue as the base figure for the income statement. Use total assets as the base figure for the balance sheet. c. Calculate the following liquidity ratios for Year 2 and Year 1: (1) working capital, (2) current ratio, (3) quick (acid-test) ratio, (4) accounts receivable turnover, (5) average days to collect receivables, (6) inventory turnover, and (7) average days to sell inventory. d. Calculate the following solvency ratios for Year 2 and Year 1: (1) debt-to-assets ratio, (2) debt-to-equity ratio, (3) number of times interest is earned, and (4) plant assets to long-term liabilities. c. Calculate the following profitability ratios for Year 2 and Year 1: (1) net margin, (2) asset turnover, (3) return on investment, and (4) return on equity. f. Calculate the following stock market ratios for Year 2 and Year 1: (1) earnings per share, (2) book value per share, (3) price-earnings ratio, and (4) dividend yield. % Change a. continued Rosson Company Horizontal Analysis of Balance Sheets Year 2 Year 1 Assets Cash $ 7,500 $ 12,500 Marketable Securities 1,000 1,500 Accounts Receivable 50,000 47,500 Inventories 150.000 145,000 Prepaid Expenses 5,000 2,500 Total Current Assets 213,500 209,000 Plant and Equipment (net) 147,000 157,000 Intangibles 30,500 Total Assets $391,000 $366,000 Liabilities Accounts Payable $ 58,000 $ 79,500 Other Accrued Liabilities 25.000 22.500 Total Current Liabilities 83,000 102,000 Bonds Payable 90,000 100,000 Total Liabilities 173,000 202,000 Stockholders' Equity Common Stock ($5 par) 130,000 130,000 Paid-in Cap. in Excess of Par 20,000 20,000 Retained Earnings 68,000 14,000 Total Stockholders' Equity 218,000 164,000 Total Liabilities and Stk. $391,000 $366,000 Equity Rosson Company Vertical Analysis of Income Statements Year 2 Year 1 Amount % of Amount % of Total Total Revenues: Net Sales $299,000 $246,000 Other Revenues 8,000 9,000 Total Revenues 307,000 255,000 Expenses: Cost of Goods Sold 172,000 138,000 S, G&A Expenses 44,000 40,000 Interest Expense 4,000 4,500 Income Tax Expense 31,000 25,400 Total Expenses 251,000 207,900 56,000 47,100 Income before Discontinued Operations Discontinued Operations Gain (net of tax) Net Income 9,000 $ 65,000 $ 47,100 *Percentages don't add up exactly because of rounding. b. continued Rosson Company Vertical Analysis of Balance Sheets Year 2 Year 1 Amount % of Amount % of Total Total Assets Cash $ 7,500 $ 12,500 Marketable Securities 1,000 1,500 Accounts Receivable 50,000 47,500 Inventories 150,000 145,000 Prepaid Expenses 5,000 2,500 Total Current Assets 213,500 209,000 157,000 147,000 30,500 $391,000 $366,000 Plant and Equipment (net) Intangibles Total Assets Liabilities Accounts Payable Other Accrued Liabilities Total Current Liabilities $ 58,000 25,000 83,000 $ 79,500 22,500 102,000 90,000 173,000 100,000 202,000 Bonds Payable Total Liabilities Stockholders' Equity Common Stock ($5 par) Paid-in Cap. in Excess of Par Retained Earnings Total Stockholders' Equity 130,000 20,000 68,000 218,000 130,000 20,000 14,000 164,000 Total Equity Liabilities and Stk. $391,000 $366,000 *Percentages don't add up exactly because of rounding. c. Liquidity Ratios (1) Year III Working Capital $130,500 Year $107,000 (2) Current Ratio Year 1 Year 2 i _o =_to 1 (3) Quick (Acid-Test) Ratio Year 2 Year 1 -=_ to 1 Year 2: Year 1: Receivable Year 2 Year 1 (4) Accts. Turnover 2 times times Collect Year 2 (5) Avg. Days to Receivables Year 1 - days days (6) Inventory Turnover Year 2 Year 1 times times (7) Avg. Days to Sell Inventory Year 2 Year 1 days days d. Solvency Ratios (1) Debt to Assets Year 2 Year 1 P - % (2) Debt to Equity Year 1 Year 2 - = 79.4% 123.2% (3) Times Interest Earned Year 2 Year 1 times times *Before discontinued operations gain (4) Plant Assets to LT Liab. Year 1 Year 2 = to 1 = to 1 e. Profitability Ratios (1) Net Margin Year 2 Year 1 -= % % (2) Asset Turnover Year 2 Year 1 e. Profitability Ratios, continued (3) Return on Investment Year 2 Year 1 s = (4) Return on Equity Year 2 Year 1 6 = _% f. Stock Market Ratios (1) Earnings per Share Year 2 Year 1 T = $ 7 = $ (2) Book Value per Share Year 2 Year 1 = $ (3) Price-Earnings Ratio Year 2 Year 1 III (4) Dividend Yield Year 2 Year 1 Information below comes from the financial statements of Rosson Company. Rosson Company Income Statement Year 2 Year 1 $299,000 8,000 307,000 $246,000 9,000 255,000 Revenues: Net Sales Other Revenues Total Revenues Expenses: Cost of Goods Sold SG&A Expenses Interest Expense Income Tax Expense Total Expenses Income before Discontinued Operations Discontinued Operations Gain (net of tax) Net Income 172,000 44,000 4,000 31,000 251,000 56,000 9,000 $ 65,000 138,000 40,000 4,500 25,400 207,900 47,100 $ 47,100 Kosson Company Balance Sheet Year 2 Year 1 Assets: Current Assets: Cash Marketable Securities Accounts Receivable Inventories Prepaid Expenses Total Current Assets Plant and Equipment (net) Intangibles Total Assets $ 7,500 1,000 50,000 150.000 5,000 213,500 147,000 30,500 $391.000 $ 12,500 1,500 47,500 145,000 2,500 209,000 157,000 $366.000 Liabilities: Current Liabilities: Accounts Payable Other Accrued Liabilities Total Current Liabilities Bonds Payable Total Liabilities $58,000 25,000 83,000 90.000 $173,000 $ 79,500 22,500 102,000 100.000 $202,000 Stockholders' Equity: Common Stock ($5 par) Paid-In Capital in Excess of Par Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity 130,000 20,000 68.000 218.000 $391,000 130,000 20,000 14.000 164.000 $366,000 Common stock market price at year-end $14.00 $8.55 Required Perform the following analyses. If you have insufficient data to use averages in ratio computations, use year-end balances in the calculations. a. Perform horizontal analysis of the income statement and balance sheet data. Use Year 1 as the base year. b. Perform vertical analysis of the income statement and balance sheet data for Year 1 and Year 2. Use sales revenue as the base figure for the income statement. Use total assets as the base figure for the balance sheet. c. Calculate the following liquidity ratios for Year 2 and Year 1: (1) working capital, (2) current ratio, (3) quick (acid-test) ratio, (4) accounts receivable turnover, (5) average days to collect receivables, (6) inventory turnover, and (7) average days to sell inventory. d. Calculate the following solvency ratios for Year 2 and Year 1: (1) debt-to-assets ratio, (2) debt-to-equity ratio, (3) number of times interest is earned, and (4) plant assets to long-term liabilities. c. Calculate the following profitability ratios for Year 2 and Year 1: (1) net margin, (2) asset turnover, (3) return on investment, and (4) return on equity. f. Calculate the following stock market ratios for Year 2 and Year 1: (1) earnings per share, (2) book value per share, (3) price-earnings ratio, and (4) dividend yield. % Change a. continued Rosson Company Horizontal Analysis of Balance Sheets Year 2 Year 1 Assets Cash $ 7,500 $ 12,500 Marketable Securities 1,000 1,500 Accounts Receivable 50,000 47,500 Inventories 150.000 145,000 Prepaid Expenses 5,000 2,500 Total Current Assets 213,500 209,000 Plant and Equipment (net) 147,000 157,000 Intangibles 30,500 Total Assets $391,000 $366,000 Liabilities Accounts Payable $ 58,000 $ 79,500 Other Accrued Liabilities 25.000 22.500 Total Current Liabilities 83,000 102,000 Bonds Payable 90,000 100,000 Total Liabilities 173,000 202,000 Stockholders' Equity Common Stock ($5 par) 130,000 130,000 Paid-in Cap. in Excess of Par 20,000 20,000 Retained Earnings 68,000 14,000 Total Stockholders' Equity 218,000 164,000 Total Liabilities and Stk. $391,000 $366,000 Equity Rosson Company Vertical Analysis of Income Statements Year 2 Year 1 Amount % of Amount % of Total Total Revenues: Net Sales $299,000 $246,000 Other Revenues 8,000 9,000 Total Revenues 307,000 255,000 Expenses: Cost of Goods Sold 172,000 138,000 S, G&A Expenses 44,000 40,000 Interest Expense 4,000 4,500 Income Tax Expense 31,000 25,400 Total Expenses 251,000 207,900 56,000 47,100 Income before Discontinued Operations Discontinued Operations Gain (net of tax) Net Income 9,000 $ 65,000 $ 47,100 *Percentages don't add up exactly because of rounding. b. continued Rosson Company Vertical Analysis of Balance Sheets Year 2 Year 1 Amount % of Amount % of Total Total Assets Cash $ 7,500 $ 12,500 Marketable Securities 1,000 1,500 Accounts Receivable 50,000 47,500 Inventories 150,000 145,000 Prepaid Expenses 5,000 2,500 Total Current Assets 213,500 209,000 157,000 147,000 30,500 $391,000 $366,000 Plant and Equipment (net) Intangibles Total Assets Liabilities Accounts Payable Other Accrued Liabilities Total Current Liabilities $ 58,000 25,000 83,000 $ 79,500 22,500 102,000 90,000 173,000 100,000 202,000 Bonds Payable Total Liabilities Stockholders' Equity Common Stock ($5 par) Paid-in Cap. in Excess of Par Retained Earnings Total Stockholders' Equity 130,000 20,000 68,000 218,000 130,000 20,000 14,000 164,000 Total Equity Liabilities and Stk. $391,000 $366,000 *Percentages don't add up exactly because of rounding. c. Liquidity Ratios (1) Year III Working Capital $130,500 Year $107,000 (2) Current Ratio Year 1 Year 2 i _o =_to 1 (3) Quick (Acid-Test) Ratio Year 2 Year 1 -=_ to 1 Year 2: Year 1: Receivable Year 2 Year 1 (4) Accts. Turnover 2 times times Collect Year 2 (5) Avg. Days to Receivables Year 1 - days days (6) Inventory Turnover Year 2 Year 1 times times (7) Avg. Days to Sell Inventory Year 2 Year 1 days days d. Solvency Ratios (1) Debt to Assets Year 2 Year 1 P - % (2) Debt to Equity Year 1 Year 2 - = 79.4% 123.2% (3) Times Interest Earned Year 2 Year 1 times times *Before discontinued operations gain (4) Plant Assets to LT Liab. Year 1 Year 2 = to 1 = to 1 e. Profitability Ratios (1) Net Margin Year 2 Year 1 -= % % (2) Asset Turnover Year 2 Year 1 e. Profitability Ratios, continued (3) Return on Investment Year 2 Year 1 s = (4) Return on Equity Year 2 Year 1 6 = _% f. Stock Market Ratios (1) Earnings per Share Year 2 Year 1 T = $ 7 = $ (2) Book Value per Share Year 2 Year 1 = $ (3) Price-Earnings Ratio Year 2 Year 1 III (4) Dividend Yield Year 2 Year 1