Required: Compute all ratios and interpretation.
information. Therefore, statements being compared have been developed in the same way. Basic Financial Statements The basic financial statements the income statement and balance sheet--for the Phyl- lis Petroleum Company for the years 19X1 and 19X2 are presented in Tables 3.2 and 3.3. The statements will be used to demonstrate the calculation of the various financial ratios presented in the following sections. Data for the year 1982 will be used for the calculation of most of the ratios. These financial statements will be used throughout the remainder of this chapter to demonstrate the use of the ratios defined. In addition, we shall make two basic assump tions: 1 That 95 percent of the firm's sales is on credit and the remaining sales are made for cash. 2 That 80 percent of the cost of goods sold represents credit purchases while the remain- der represent cash purchases. These assumptions apply to the operations of the firm in both 19X1 and 1982. Table 3.2 Phyllis Petroleum Company Ltd. Income Statements For the year ending December 31 19X2 19X1 $3,073,538 2,088,039 $985,499 $2,567,530 1.711.011 $856,519 Sales Less: Cost of goods sold Gross profits Less: Operating expenses Selling expense General and administrative expenses Lease expense Depreciation and depletion charges Total operating expense Operating profits Less: Interest expense Net profits before taxes Less: Taxes (rate=29%)' Net profits after taxes Less: Preferred share dividends Earnings available for common shareholders Less: Common share dividends To retained earnings $100,500 190,005 69,011 238,886 $598,402 $387,097 62,338 $324,759 94,348 $230,411 10,000 $220,411 98,195 $122.216 $108,089 190,020 63,880 223.099 $585,088 $271,431 58.846 $212,585 64,157 $148.428 10.000 $138,428 97.598 $ 40.830 "The -percent tax rate for 19X2 results from the fact that the firm has certain special tax write-offs that do not show up directly on its income statement Chapter 3: The Analysis of Financial Statements 73 Table 3.3 Phylis Petroleum Company Ltd, Balance Sheets For the year ending December 31 19X2 19X1 $ 352,970 68,162 502,695 288,883 $1.222,710 $ 287,718 50,764 383,854 280,857 $1.003.193 Assets Current assets Cash Marketable securities Accounts receivable Inventories Total current assets Property, plant, and equipment (at cost) Land and buildings Machinery and equipment Furniture and fixtures Vehicles Other Total fixed assets (at cost) Less: Accumulated depreciation and depletion Net property, plant, and equipment Intangible assets Total assets $2,071,594 1.743.226 316,191 274,704 98,352 $4,504,067 2,172,008 $2,332,059 $ 42,004 $3,596.773 $1.902.962 1,692,263 285.212 314,285 96,183 $4,291,905 2,056,249 $2.235.656 $ 30,770 $3,269,619 Liabilities and shareholders' equity Current liabilities Accounts payable Notes payable and current portion of long-term debt Accruals Total current liabilities Long-term debts Total liabilities $ 381,894 79,378 159,479 $ 620,751 $1,022,437 $1,643,188 $ 270.159 58.992 153.786 $ 482,937 $ 966,858 $1.449.795 $ 200,000 $ 200,000 Shareholders' equity Preferred shares-cumulative 5%, $100 par. 2.000 shares authorized and issued Common shares-$2.50 par, 100,000 shares authorized shares issued and outstanding in 19X2: 76,262, in 1981: 76,244 Paid-in capital in excess of par on common shares Retained earnings Total shareholders' equity Total liabilities and shareholders' equity 190,655 429,003 1,133.927 $1.953,585 $3,596,773 190.610 417,503 1,011.711 $1,819,824 $3,269,619
