Some recent financial statements for Smolira Golf Corp. follow.

Some recent financial statements for Smolira Golf Corp. follow.

 

SMOLIRA GOLF 2011 and 2012 Balance Sheets
Assets									Liabilities and Owners’ Equity
	2011				2012					2011				2012
Current assets									Current liabilities
Cash	$	24,236			$	26,000			Accounts payable	$	25,084			$	29,000
Accounts receivable		14,348				17,100			Notes payable		19,000				12,700
Inventory		27,892				29,000			Other		13,471				18,300
Total	$	66,476			$	72,100			Total	$	57,555			$	60,000
									Long-term debt	$	88,000			$	99,000
									Owners’ equity
									Common stock and paid-in surplus	$	45,000			$	45,000
									Accumulated retained earnings		219,616				233,000
Fixed assets
Net plant and equipment	$	343,695			$	364,900			Total	$	264,616			$	278,000
Total assets	$	410,171			$	437,000			Total liabilities and owners’ equity	$	410,171			$	437,000

SMOLIRA GOLF, INC. 2012 Income Statement
Sales					$	392,640
Cost of goods sold						257,000
Depreciation						48,800
Earnings before interest and taxes					$	86,840
Interest paid						16,200
Taxable income					$	70,640
Taxes (40%)						28,256
Net income					$	42,384
Dividends	$	29,000
Retained earnings		13,384

Smolira Golf Corp. has 20,000 shares of common stock outstanding, and the market price for a share of stock at the end of 2012 was $21.

 

What is the price–earnings ratio? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

 

Price–earnings ratio

times

 



Explanation:

Earnings per share	=	Net income / Shares
Earnings per share	=	$42,384 / 20,000 = $2.12 per share
P/E ratio	=	Shares price / Earnings per share
P/E ratio	=	$21 / $2.12 = 9.91 times

Some recent financial statements for Smolira Golf Corp. follow.

Some recent financial statements for Smolira Golf Corp. follow.

 

SMOLIRA GOLF 2011 and 2012 Balance Sheets
Assets									Liabilities and Owners’ Equity
	2011				2012					2011				2012
Current assets									Current liabilities
Cash	$	23,046			$	25,100			Accounts payable	$	24,184			$	28,100
Accounts receivable		13,448				16,200			Notes payable		20,000				11,800
Inventory		26,822				28,100			Other		12,571				19,100
Total	$	63,316			$	69,400			Total	$	56,755			$	59,000
									Long-term debt	$	79,000			$	90,000
									Owners’ equity
									Common stock and paid-in surplus	$	48,000			$	48,000
									Accumulated retained earnings		214,256				237,000
Fixed assets
Net plant and equipment	$	334,695			$	364,600			Total	$	262,256			$	285,000
Total assets	$	398,011			$	434,000			Total liabilities and owners’ equity	$	398,011			$	434,000

SMOLIRA GOLF, INC. 2012 Income Statement
Sales					$	349,760
Cost of goods sold						241,500
Depreciation						27,200
Earnings before interest and taxes					$	81,060
Interest paid						15,300
Taxable income					$	65,760
Taxes (35%)						23,016
Net income					$	42,744
Dividends	$	20,000
Retained earnings		22,744

  

Find the following financial ratios for Smolira Golf Corp. (use year-end figures rather than average values where appropriate): (Round your answers to 2 decimal places. (e.g., 32.16))

 

Short-term solvency ratios:		2011	2012
a.	Current ratio	times	times
b.	Quick ratio	times	times

 

Asset utilization ratios:
c.	Total asset turnover	times

 

Long-term solvency ratios:		2011	2012
d.	Total debt ratio	times	times

 

e.	Times interest earned	times

 

Profitability ratios:
f.	Profit margin	%
g.	Return on equity	%

Explanation:

a.

Short-term solvency ratios:
Current ratio	=	Current assets / Current liabilities
Current ratio 2011	=	$63,316 / $56,755 = 1.12 times
Current ratio 2012	=	$69,400 / $59,000 = 1.18 times

 
b.

Quick ratio	=	(Current assets − Inventory) / Current liabilities
Quick ratio 2011	=	($63,316 − 26,822) / $56,755 = 0.64 times
Quick ratio 2012	=	($69,400 − 28,100) / $59,000 = 0.70 times

 
c.

Asset utilization ratios:
Total asset turnover	=	Sales / Total assets
Total asset turnover	=	$349,760 / $434,000 = 0.81 times

   
d.

Long-term solvency ratios:
Total debt ratio	=	(Total assets − Total equity) / Total assets
Total debt ratio 2011	=	($398,011 − 262,256) / $398,011 = 0.34 times
Total debt ratio 2012	=	($434,000 − 285,000) / $434,000 = 0.34 times

   
e.

Times interest earned	=	EBIT / Interest
Times interest earned	=	$81,060 / $15,300 = 5.30 times

 
f.

Profitability ratios:
Profit margin	=	Net income / Sales
Profit margin	=	$42,744 / $349,760 = 0.1222, or 12.22%

   
g.

Return on equity	=	Net income / Total equity
Return on equity	=	$42,744 / $285,000 = 0.1500, or 15.00%

In response to complaints about high prices, a grocery chain runs the following advertising campaign: “If you pay your child $6 to go buy $100 worth of groceries, then your child makes twice as much on the trip as we do.” You’ve collected the following information from the grocery chain’s financial statements

In response to complaints about high prices, a grocery chain runs the following advertising campaign: “If you pay your child $6 to go buy $100 worth of groceries, then your child makes twice as much on the trip as we do.” You’ve collected the following information from the grocery chain’s financial statements:

  

(millions)
Sales	$	760.0
Net income		22.8
Total assets		390.0
Total debt		260.0

 

What is the profit margin for child and store? (Round your answers to 2 decimal places. (e.g., 32.16))

 

	Profit margin
Child	%
Store	%

  

What is the store's ROE? (Round your answer to 2 decimal places. (e.g., 32.16))

  

ROE

%

Explanation:

Child:  Profit margin = NI / S = $6 / $100 = 0.06000, or 6.00%

Store:  Profit margin = NI / S = $22,800,000 / $760,000,000 = 0.03000, or 3.00%

  

The advertisement is referring to the store’s profit margin, but a more appropriate earnings measure for the firm’s owners is the return on equity.

  

ROE = NI / TE = NI / (TA – TD)

ROE = $22,800,000 / ($390,000,000 − 260,000,000) = 0.1754, or 17.54%

SDJ, Inc., has net working capital of $3,810, current liabilities of $5,600, and inventory of $4,840. What is the current ratio?

SDJ, Inc., has net working capital of $3,810, current liabilities of $5,600, and inventory of $4,840.

  

What is the current ratio? (Round your answer to 2 decimal places. (e.g., 32.16))

 

Current ratio

times

  

What is the quick ratio? (Round your answer to 2 decimal places. (e.g., 32.16))

  

Quick ratio

times

Explanation:

The formula for NWC:

  

NWC = CA – CL

CA = CL + NWC = $3,810 + 5,600 = $9,410

  

So, the current ratio is:

Current ratio = CA / CL = $9,410 / $5,600 = 1.68 times

  

And the quick ratio is:

Quick ratio = (CA − Inventory) / CL = ($9,410 − 4,840) / $5,600 = 0.82 times

Consider the following abbreviated financial statements for Parrothead Enterprises:

Consider the following abbreviated financial statements for Parrothead Enterprises:

  

PARROTHEAD ENTERPRISES 2010 and 2011 Partial Balance Sheets
Assets								Liabilities and Owners’ Equity
		2010			2011					2010			2011
Current assets	$	934		$	984			Current liabilities	$	375		$	398
Net fixed assets		3,897			4,576			Long-term debt		2,021			2,167

 

PARROTHEAD ENTERPRISES 2011 Income Statement
Sales	$	11,770
Costs		5,710
Depreciation		1,060
Interest paid		180

 

a.	What is owners' equity for 2010 and 2011?

 

Owners' equity 2010	$
Owners' equity 2011	$

b.	What is the change in net working capital for 2011?

 

Change in NWC

$

 

c-1	In 2011, Parrothead Enterprises purchased $1,845 in new fixed assets. How much in fixed assets did Parrothead Enterprises sell?

 

Fixed assets sold

$

c-2	In 2011, Parrothead Enterprises purchased $1,845 in new fixed assets. What is the cash flow from assets for the year? (The tax rate is 35 percent.)

 

Cash flow from assets

$

 


Explanation:

a.

Total assets 2010	=	$934 + 3,897 = $4,831
Total liabilities 2010	=	$375 + 2,021= $2,396
Owners’ equity 2010	=	$4,831 – 2,396 = $2,435

Total assets 2011	=	$984 + 4,576 = $5,560
Total liabilities 2011	=	$398 + 2,167 = $2,565
Owners’ equity 2011	=	$5,560 – 2,565 = $2,995

 
b.

NWC 2010	=	CA10 – CL10 = $934 – 375 = $559
NWC 2011	=	CA11 – CL11 = $984 – 398 = $586
Change in NWC	=	NWC11 – NWC10 = $586 – 559 = $27

 
c.

We can calculate net capital spending as:

Net capital spending = Net fixed assets 2011 – Net fixed assets 2010 + Depreciation

Net capital spending = $4,576 – 3,897 + 1,060 = $1,739

 

So, the company had a net capital spending cash flow of $1,739. We also know that net capital spending is:

 

Net capital spending	=	Fixed assets bought – Fixed assets sold
$1,739	=	$1,845 – Fixed assets sold
Fixed assets sold	=	$1,845 – 1,739 = $106

To calculate the cash flow from assets, we must first calculate the operating cash flow. The income statement is:

 

Income Statement
Sales	$	11,770
Costs		5,710
Depreciation expense		1,060
EBIT	$	5,000
Interest expense		180
EBT	$	4,820
Taxes (35%)		1,687
Net income	$	3,133

 

So, the operating cash flow is:

OCF = EBIT + Depreciation – Taxes = $5,000 + 1,060 –1,687 = $4,373

And the cash flow from assets is:

 

Cash flow from assets	=	OCF – Change in NWC – Net capital spending.
	=	$4,373 – 27 – 1,739 = $2,607