Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The financial statements for Royale and Cavalier companies are summarized here: Royale Company Cavalier Company Balance Sheet Cash $ 25,000 $ 45,000 Accounts Receivable, Net

The financial statements for Royale and Cavalier companies are summarized here:

Royale Company Cavalier Company
Balance Sheet
Cash $ 25,000 $ 45,000
Accounts Receivable, Net 55,000 16,000
Inventory 110,000 25,000
Equipment, Net 550,000 160,000
Other Assets 140,000 46,000
Total Assets $ 880,000 $ 292,000
Current Liabilities $ 120,000 $ 15,000
Notes Payable (long-term) 190,000 55,000
Common Stock (par $20) 480,000 210,000
Additional Paid-In Capital 50,000 4,000
Retained Earnings 40,000 8,000
Total Liabilities and Stockholders Equity $ 880,000 $ 292,000
Income Statement
Sales Revenue $ 800,000 $ 280,000
Cost of Goods Sold 480,000 150,000
Other Expenses 240,000 95,000
Net Income $ 80,000 $ 35,000
Other Data
Per share price at end of year $ 14.00 $ 11.00
Selected Data from Previous Year
Accounts Receivable, Net $ 47,000 $ 14,000
Notes Payable (long-term) 190,000 55,000
Equipment, Net 550,000 160,000
Inventory 95,000 38,000
Total Stockholders' Equity 570,000 202,000

These two companies are in the same business and state but different cities. Each company has been in operation for about 10 years. Both companies received an unqualified audit opinion on the financial statements. Royale Company wants to borrow $75,000 cash, and Cavalier Company is asking for $30,000. The loans will be for a two-year period. Both companies estimate bad debts based on an aging analysis, but Cavalier has estimated slightly higher uncollectible rates than Royale. Neither company issued stock in the current year. Assume the end-of-year total assets and net equipment balances approximate the years average and all sales are on account.

Required:

Calculate the following ratios.

Note: Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal places.

Ratio Royale Company Cavalier Company
Tests of Profitability:
1. Net Profit Margin % %
2. Gross Profit Percentage % %
3. Fixed Asset Turnover
4. Return on Equity % %
5. Earnings per Share
6. Price/Earnings Ratio
Tests of Liquidity:
7. Receivables Turnover
7. Days to Collect
8. Inventory Turnover
8. Days to Sell
9. Current Ratio
Tests of Solvency:
10. Debt-to-Assets

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Accounting questions

Question

=+ I want to revise effectively for an upcoming assignment or exam.

Answered: 1 week ago