Introduction to Financial Statement Analysis

C213: Accounting for Decision Makers

Problems (Show your calculations, round answers to 2 decimal points)

Using the information and financial statements on the following pages, calculate each of the following ratios for Sample Company.

1.Current Ratio

2.Debt Ratio

3.Return on Equity (ROE)

4.Return on Assets (ROA)

5.Times Interest Earned (TIE)

6.Return on Sales (ROS)

7.Assets-to-Equity Ratio

8.Debt-to-Equity Ratio

9.Asset Turnover Ratio (AT)

10. Price-Earnings Ratio (PE)

11. Cash Flow-to-Net Income Ratio

12. Cash Times Interest Earned Ratio

13. Cash Flow Adequacy Ratio

14. Based on the Cash Flow Adequacy Ratio, is Sample Company a "Cash Cow"?Why or why not?

Shares Outstanding: 100,000

Market Value of Shares: $500,000

Sample Company, Inc.

Balance Sheet

December 31, 2020

ASSETS

Current Assets

Cash$100,000

Accounts Receivable200,000

Inventory150,000

Prepaid Insurance50,000

Total Current Assets$500,000

Long-Term Assets

Investments$ 40,000

Property, Plant, & Equipment 300,000

Intangible Assets50,000

Other Assets10,000

Total Long-Term Assets 400,000

TOTAL ASSETS$900,000

LIABILITIES

Current Liabilities

Accounts Payable$150,000

Accrued Liabilities 25,000

Short-Term Notes Payable50,000

Current Portion of Long-Term Debt75,000

Total Current Liabilities$300,000

Long-Term Liabilities

Long-Term Notes Payable$150,000

Bonds Payable250,000

Total Long-Term Liabilities400,000

TOTAL LIABILITIES$700,000

STOCKHOLDERS' EQUITY

Common Stock (par value) $100,000

Additional Paid-in Capital 50,000

Retained Earnings200,000

Less: Treasury Stock(150,000)

TOTAL STOCKHOLDERS' EQUITY200,000

TOTAL LIABILITIES &

STOCKHOLDERS' EQUITY$900,000

Sample Company, Inc.

Income Statement

For the Year Ending December 31, 2020

Sales Revenue$1,000,000

Less: Cost of Goods Sold(600,000)

Gross Profit$400,000

Less: Operating Expenses:

Wages & Salaries$(210,000)

RentExpense(12,000)

Depreciation Expense (8,000)

Insurance Expense(24,000)

Utilities Expense(30,000)

Other Operating Expenses (16,000)

Total Operating Expenses(300,000)

Operating Income100,000

Other Income & Expenses

Interest Income$5,000

Dividend Income10,000

Less: Interest Expense (35,000)

Total Other Income & Expenses(20,000)

Less: Income Tax Expense(30,000)

NET INCOME$ 50,000

Sample Company, Inc.

Statement of Cash Flows

For the Year Ending December 31, 2020

CASH FLOWS FROM OPERATING ACTIVITIES

Collections from Customers$1,020,000

Interest Received4,000

Dividends Received 8,000

Payments to Suppliers (610,000)

Wages & Salaries Paid (220,000)

Interest Paid (34,000)

Insurance Paid (21,000)

Rent Paid (15,000)

Utilities Paid (27,000)

Income Taxes Paid (32,000)

Other Payments (10,000)

NET CASH PROVIDED BY OPERATING ACTIVITES$63,000

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of Property & Equipment $ (30,000)

NET CASH USED FOR INVESTING ACTIVIES(30,000)

CASH FLOWS FROM FINANCING ACTIVITIES

Issuance of Stock $25,000

Proceeds from Long-Term Debt 100,000

Payment of Dividends(20,000)

Repurchase of Treasury Stock (10,000)

Payments on Long-Term Debt (30,000)

NET CASH PROVIDED BY FINANCING ACTIVITES 65,000

NET INCREASE (DECREASE) IN CASH 98,000

BEGINNING CASH BALANCE 2,000

ENDING CASH BALANCE $100,000