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Financial Ratios & Analysis Guide

The document provides information to calculate various financial ratios for Happy Company and Amber Company. It includes their statement of financial position, income statement, and selected financial data. It asks to compute 17 different ratios for Happy Company including earnings per share, price-earnings ratio, dividend payout ratio, and current ratio. It also asks to calculate profitability ratios for Amber Company from the financial data provided. Finally, it asks to determine the effect on the current ratio for 7 different transactions.

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112 views3 pages

Financial Ratios & Analysis Guide

The document provides information to calculate various financial ratios for Happy Company and Amber Company. It includes their statement of financial position, income statement, and selected financial data. It asks to compute 17 different ratios for Happy Company including earnings per share, price-earnings ratio, dividend payout ratio, and current ratio. It also asks to calculate profitability ratios for Amber Company from the financial data provided. Finally, it asks to determine the effect on the current ratio for 7 different transactions.

Uploaded by

132345usdfghj
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Ratio Analysis

ANSWER THE FOLLOWING PROBLEMS:

1. Financial statements for Happy Company appear below:

Happy Company
Statement of Financial Position
December 31, Year 2 and Year 1
(peso in thousands)

Year 2 Year 1
Current assets:
Cash and marketable securities P 140 P 140
Accounts receivable, net 190 180
Inventory 150 150
Prepaid expenses 70 70
Total current assets 550 540
Noncurrent assets:
Plant & equipment, net 1,490 1,420
Total assets P2,040 P1,960

Current liabilities:
Accounts payable P 160 P 160
Accrued liabilities 50 60
Notes payable, short term 230 250
Total current liabilities 440 470
Noncurrent liabilities:
Bonds payable 300 300
Total liabilities 740 770
Stockholders’ equity:
Preferred stock, $5 par, 10% 120 120
Common stock, $5 par 180 180
Additional paid-in capital–common stock 210 210
Retained earnings 790 680
Total stockholders’ equity 1,300 1,190
Total liabilities & stockholders’ equity P2,040 P1,960

Happy Company
Income Statement

FM1 Activities and Quizzes Page 1


Income Statement
For the Year Ended December 31, Year 2
(dollars in thousands)

Sales (all on account) P2,000


Cost of goods sold 1,400
Gross margin 600
Selling and administrative expense 240
Net operating income 360
Interest expense 30
Net income before taxes 330
Income taxes (30%) 99
Net income P 231

Dividends during Year 2 totaled P121 thousand, of which P12 thousand were preferred
dividends. The market price of a share of common stock on December 31, Year 2 was
P80.
Required:

Compute the following for Year 2:


a. Earnings per share of common stock.
b. Price-earnings ratio.
c. Dividend payout ratio.
d. Dividend yield ratio.
e. Return on total assets.
f. Book value per share.
g. Working capital.
h. Current ratio.
i. Acid-test ratio.
j. Accounts receivable turnover.
k. Average collection period.
l. Inventory turnover.
m. Average sale period.
n. Times interest earned.
o. Debt-to-equity ratio.

2. Selected data from Amber Company are presented below:


Total assets P1,600,000
Average assets 1,750,000
Net income 245,000
Net sales 1,225,000
Average common stockholders' equity 1,000,000
Net cash provided by operating activities 294,000

Instructions
Calculate the profitability ratios that can be computed from the above information.

FM1 Activities and Quizzes Page 2


3. State the effect of the following transactions on the current ratio. Use increase, decrease, or no
effect for your answer.
(a) Collection of an accounts receivable.
(b) Declaration of cash dividends.
(c) Additional stock is sold for cash.
(d) Stock investments are purchased for cash.
(e) Equipment is purchased for cash.
(f) Inventory purchases are made for cash.
(g) Accounts payable are paid.

FM1 Activities and Quizzes Page 3

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