PA13-2 Analyzing Comparative Financial Statements Using Selected Ratios (LO 13-4, LO 13-5] Pinnacle Plus declared and paid a cash dividend of $6,600 in the current year. Its comparative financial statements, prepared at December 31, reported the following summarized information: Current Year Previous Year $110,000 52,000 58,000 36,000 4,000 18,000 5,400 $ 12,600 $ 99,000 48,000 51,000 33,000 4,000 14,000 4,200 $ 9,800 Income Statement Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses Interest Expense Income before Income Tax Expense Income Tax Expense (30%) Net Income Balance Sheet Cash Accounts Receivable, Net Inventory Property and Equipment, Net Total Assets Accounts Payable Income Tax Payable Note Payable (long-term) Total Liabilities Common Stock (par $10) Retained Earnings Total Liabilities and Stockholders' Equity $ 69,500 17,000 25,000 95,000 $206,500 $ 42,000 1,000 40,000 83,000 90,000 33,500 $206,500 $ 38,000 12,000 38,000 105,000 $193,000 $ 35,000 500 40,000 75,500 90,000 27,500 $ 193,000 Required: Required: 1. Compute the gross profit percentage in the current and previous years. Are the current year results better, or worse, than those for the previous year? 2. Compute the net profit margin for the current and previous years. Are the current year results better, or worse, than those for the previous year? 3. Compute the earnings per share for the current and previous years. Are the current year results better, or worse, than those for the previous year? 4. Stockholders' equity totaled $100,000 at the beginning of the previous year. Compute the return on equity (ROE) ratios for the current and previous years. Are the current year results better, or worse, than those for the previous year? 5. Net property and equipment totaled $110,000 at the beginning of the previous year. Compute the fixed asset turnover ratios for the current and previous years. Are the current year results better, or worse, than those for the previous year? 6. Compute the debt-to-assets ratios for the current and previous years. Is debt providing financing for a larger or smaller proportion of the company's asset growth? 7. Compute the times interest earned ratios for the current and previous years. Are the current year results better, or worse, than those for the previous year? 8. After Pinnacle Plus released its current year's financial statements, the company's stock was trading at $18. After the release of its previous year's financial statements, the company's stock price was $15 per share. Compute the P/E ratios for both years. Does it appear that investors have become more (or less) optimistic about Pinnacle's future success? 5-a. Fixed Asset Turnover Current Year Previous Year 5-b. Current year fixed asset turnover? O Better O Worse 6-a. Debt-to-Assets Current Year Previous Year 6-b. Current year debt-to-assets ratio? Larger Proportion Smaller Proportion 7-a. Times Interest Earned Current Year Previous Year 7-b. Current year times interest earned ratio? O Better O Worse 8-a. Price/Earnings Ratio Current Year Previous Year 8-b. Current year P/E ratio? O More Optimistic OLess Optimistic