Ratios from Comparative and Common-Size Data Consider the following financial statements for Waverly Company. During 2016, management obtained additional bond financing to enlarge its production facilities. The company faced higher production costs during the year for such things as fuel, materials, and freight. Because of temporary government price controls, a planned price increase on products was delayed several months. As a holder of both common and preferred stock, you decide to analyze the financial statements: WAVERLY COMPANY Balance Sheets (Thousands of Dollars) Dec. 31, 2016 Dec. 31, 2015 Assets Cash and cash equivalents Accounts receivable (net) Inventory Prepaid expenses Plant and other assets (net) Total Assets 19,000 $12.000 43,000 120,000 105,000 14,000 411,000 $685.000 $585,000 55,000 20,000 471,000 Liabilities and Stockholders' Equity Current liabilities 10% Bonds payable 9% Preferred stock, SSO Par Value Common stock, $10 Par Value Retained earnings Total Liabilities and Stockholders' Equity $91,000 82,000 75,000 200,000 94,000 685,000 160,000 75,000 200,000 68,000 $585,000 WAVERLY COMPANY Income Statements (Thousands of Dollars) 2016 2015 Sales revenue $820,000 $678,000 Liabilities and Stockholders' Equity Current liabilities 10% Bonds payable 9% Preferred stock, $50 Par Value Common stock, $10 Par Value Retained earnings Total Liabilities and Stockholders' Equity $91,000 $82,000 225,000 160,000 75,000 200,000 200,000 68,000 $685,000 $585,000 75,000 4,000 WAVERLY COMPANY Income Statements (Thousands of Dollars) 2016 2015 $820,000 $678,000 545,000 433,920 275,000 244,080 175,000 149,200 Income before interest expense and income taxes 100,000 94,880 Sales revenue Cost of goods sold Gross profit on sales Selling and administrative expenses Interest expense Income before income taxes Income tax expense Net income 22,500 16,000 77,500 78,880 22,900 21,300 $54,600 $57,580 Other financial data (thousands of dollars) $65,200 $60,500 Cash provided by operating activities 6,750 6,750 Preferred stock dividends interest expense Income before income taxes Income tax expense Net income 22,50016,000 77,500 78,880 22,900 21,300 $54,600 $57,580 Other financial data (thousands of dollars) Cash provided by operating activities $65,200 $60,500 Preferred stock dividends 6,750 6,750 Required a. Calculate the following for each year: current ratio, quick ratio, operating-cash- flow-to-current-liabilities ratio (current liabilities were $77,000,000 at January 1, 2015), inventory turnover (inventory was $87.000,000 at January 1, 2015), debt-to- equity ratio, times-interest-earned ratio, return on assets (total assets w $490,000,000 at January 1, 2015), and return on common stockholders' equity (common stockholders' equity was $235,000,000 at January 1, 2015). b. Calculate common-size percentages for each year's income statement. a. Round answers to two decimal places. 2016 2.35 0.81 0.75 2015 Current ratio: 2.12 | 0.67 0.76 4.52 0.8 X 5.93 Quick ratio: Operating-cash-flow-to-current-liabilities ratio: Inventory turnover Debt-to-equity ratio: 4.84 1.13 | Times-interest-earned ratio: 4.44 Return on assets: 12.4 % 12.8 % Return on common stockholders' equity 27.3 % 28.8 %
