Instructions: Please use the financial statements provided in Question 5 to answer the following questions:

1. Please compute and show your work for the following ratios This Year for 1 Company and please identify the significance of each ratio i.e. how are they used and why they are important (25 points):

Computation: Informational Value/Significance:

1. Current Ratio current asset/current liabilities

2. Gross Profit Percentage gross profit/total sales*100%

3. Days Sales in Receivables 365/accounts receivable turnover ratio

4. Inventory Turnover cogs/average inventory

5. Rate of Return on Total Assets net income/average assets

6. Debt-to-Equity Ratio total liabilities/total equity

7. Times Interest Earned Ratio earnings before interest and taxes/interest expense

8. Price Earnings Ratio market value per share/earnings per share

2. (10 points) For This Year, what is Exam1 Companys Dividend Payout Ratio? What is their retention ratio?

dividend payout ration=250000/450520=0.55

retention ratio=

3. Using the ratios you computed in Problem 1, how does Exam1 Company compare to the Industry Comparative Data? What conclusions can you draw about 1 Company based on this analysis (please be specific)? (25 points)

Industry Comparative Data:
Current Ratio	2X
Gross Profit Percentage	12%
Days Sales in Receivables	45 days
Inventory Turnover	2.5X
Return on Total Assets	9.5%
Debt-to-Equity Ratio	.7X
Times Interest Earned	5.7X
Price Earnings Ratio	13X

4. Please Common Size the income statement of 1 Company for This Year (20 points).

1 Company
Income Statement	This Year
Sales (all on account)	6,000,000
Cost of Goods Sold	4,200,000
Gross Margin	1,800,000
Selling & Administrative Expense	558,000
Depreciation Expense	418,000
Earnings Before Interest & Taxes	824,000
Interest Expense	180,400
Earnings Before Taxes	643,600
Income Taxes (30%)	193,080
Net Income	450,520
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5. Please compute the change and direction of change for each account on This Year 1 Companys Balance Sheet. Based upon the change and the direction of the change, please categorize each of the accounts on This Year 1 Companys Balance Sheet as either a source or a use of cash and indicate whether it is an operating, investing, or financing activity. (20 points)

1 Company

Comparative Balance Sheet

Assets: This Year Last Year Change Source/Use O/I/F

Current Assets:

Cash 940,000 520,000

Accounts Receivable (net) 1,400,000 600,000

Inventory 1,100,000 800,000

Prepaid Expenses 80,000 60,000

Total Current Assets: 3,520,000 1,980,000

Property, Plant & Equipment (net) 4,220,520 2,980,000

Total Assets: 7,740,520 4,960,000

Liabilities & Stockholder Equity:

Current Liabilities: 1,100,000 920,000

Bonds Payable, 10%: 800,000 1,000,000

Total Liabilities: 1,900,000 1,920,000

Stockholder Equity:

Common Stock, $26 Par Value 5,200,000 2,600,000

Retained Earnings 640,520 440,000

Total Stockholder Equity: 5,840,520 3,040,000

Total Liabilities & Stockholder Equity:

7,740,520 4,960,000

1 Company

Comparative Income Statement This Year Last Year

Sales (all on account) 6,000,000 4,160,000

Cost of Goods Sold 4,200,000 3,300,000

Gross Margin 1,800,000 860,000

Selling & Administrative Expense 558,000 340,000

Depreciation Expense 418,000 180,000

Earnings Before Interest & Taxes 824,000 340,000

Interest Expense 180,400 100,000

Earnings Before Taxes 643,600 240,000

Income Taxes (30%) 193,080 72,000

Net Income 450,520 168,000

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Supplemental Data: This Year Last Year

Stock Price $ 35.00 $25.00

Dividends Paid 250,000 150,000

Shares of Common Stock Outstanding 200,000 100,000