Problem 2 Financial Analysis (18 Points)

The XYZ Company just completed its first year of operations. Financial data (rounded to the nearest thousand) is as follows at and for the year ended December 31, 2016:

Total Assets ($100,000 current) $500,000

Total Liabilities ($200,000 current) $200,000

Common stock ($1 par, 100,000 issued and outstanding at par) (1)

Paid-in capital in excess of par $150,000

Retained Earnings (1)

Net income for the year ended December 31, 2016 $55,000

Dividends declared and paid $5,000

Estimated market price of common stock $10

1) Please solve the missing components of the balance sheet. How much is total stockholders equity? (3)

2) Compute the current ratio. Why is maximizing the current ratio not an efficient objective for the Company? (3)

3) Why would computing efficiency ratios such as Accounts Receivable Turnover or Inventory Turnover be important to the Company. Are higher or lower turnovers preferred to the Company? Why? (3)

4) Which would be higher? The Rate of return on Assets or the Rate of Return on Equity? Why? (3)

5) What is the Companys dividend yield? Is it higher or lower than the current markets (S&P 500) approximate dividend yield? (3)

6) What is the Companys Earnings per Share (EPS)? Is it higher or lower than the current markets (S&P 500) approximate EPS? (3)