Ratios from Comparative and Common-Size Data

Consider the following financial statements for Vega Company. During the year, management obtained additional bond financing to enlarge its production facilities. The plant addition produced a new high-margin product, which is supposed to improve the average rate of gross profit and return on sales.

As a potential investor, you decide to analyze the financial statements:

VEGA COMPANY

Balance Sheets

(Thousands of Dollars)Dec. 31, 2013Dec. 31, 2012AssetsCash$23,000$18,100Accounts receivable (net)41,00023,400Inventory107,00074,000Prepaid expenses3,5005,000Plant and other assets (net)465,500429,500Total Assets$630,000$540,000Liabilities and Stockholders' EquityCurrent liabilities$78,000$47,0009% Bonds payable191,500154,0008% Preferred stock, $50 Par Value64,00064,000Common stock, $10 Par Value227,000227,000Retained earnings83,50062,000Total Liabilities and Stockholders' Equity$630,000$540,000

VEGA COMPANY

Income Statements

(Thousands of Dollars)20132012Sales revenue$842,000$699,500Cost of goods sold554,000476,000Gross profit on sales288,000223,500Selling and administrative expenses233,000176,000Income before interest expense and income taxes57,00049,500Interest expense18,80015,500Income before income taxes40,20036,000Income tax expense14,10012,600Net income$26,100$23,400Other financial data (thousands of dollars)Cash provided by operating activities$30,000$25,000Preferred stock dividends4,8004,800

Required

a. Calculate the following for each year: current ratio, quick ratio, operating-cash-flow-to-current liabilities ratio (current liabilities were $42 million at January 1, 2012), inventory turnover (inventory was $68 million at January 1, 2012), debt-to-equity ratio, times-interest-earned ratio, return on assets (total assets were $472 million at January 1, 2012), and return on common stockholders' equity (common stockholders' equity was $266 million at January 1, 2012).

b. Calculate common size percentage for each year's income statement.

a. Round answers to two decimal places.

20132012Current ratio:Answer

Answer

Quick ratio:Answer

Answer

Operating-cash-flow-to-current-liabilities ratio:Answer

Answer

Inventory turnover:Answer

Answer

Debt-to-equity ratio:Answer

Answer

Times-interest-earned ratio:Answer

Answer

Return on assets:Answer

%Answer

%Return on common stockholders' equity:Answer

%Answer

%

b. Round answers to one decimal place.

Common-Size Percentages20132012Sales revenueAnswer

%Answer

%Cost of goods soldAnswer

%Answer

%Gross profit on salesAnswer

%Answer

%Selling and administrative expensesAnswer

%Answer

%Income before interest expense and income taxesAnswer

%Answer

%Interest expenseAnswer

%Answer

%Income before income taxesAnswer

%Answer

%Income tax expenseAnswer

%Answer

%Net incomeAnswer

%Answer

%