Ratios from Comparative and Common-SizeData
Consider the following financial statements for Waverly Company.During 2013, management obtained additional bond financing toenlarge its production facilities. The company faced higherproduction costs during the year for such things as fuel,materials, and freight. Because of temporary government pricecontrols, a planned price increase on products was delayed severalmonths.
As a holder of both common and preferred stock, you decide toanalyze the financial statements:
WAVERLY COMPANY
Balance Sheets
(Thousands of Dollars) |
|---|
| Dec. 31, 2013 | Dec. 31, 2012 |
|---|
| Assets | | |
| Cash and cash equivalents | $22,000 | $16,000 |
| Accounts receivable (net) | 59,000 | 47,000 |
| Inventory | 124,000 | 109,000 |
| Prepaid expenses | 20,000 | 14,000 |
| Plant and other assets (net) | 471,000 | 411,000 |
| Total Assets | $696,000 | $597,000 |
| Liabilities and Stockholders' Equity | | |
| Current liabilities | $90,000 | $82,000 |
| 10% Bonds payable | 225,000 | 160,000 |
| 9% Preferred stock, $50 Par Value | 79,000 | 79,000 |
| Common stock, $10 Par Value | 204,000 | 204,000 |
| Retained earnings | 98,000 | 72,000 |
| Total Liabilities and Stockholders' Equity | $696,000 | $597,000 |
WAVERLY COMPANY
Income Statements
(Thousands of Dollars) |
|---|
| 2013 | 2012 |
|---|
| Sales revenue | $824,000 | $682,000 |
| Cost of goods sold | 545,200 | 437,920 |
| Gross profit on sales | 278,800 | 244,080 |
| Selling and administrative expenses | 171,400 | 149,200 |
| Income before interest expense and income taxes | 107,400 | 94,880 |
| Interest expense | 26,500 | 20,000 |
| Income before income taxes | 80,900 | 74,880 |
| Income tax expense | 26,900 | 25,300 |
| Net income | $54,000 | $49,580 |
| 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, quickratio, operating-cash-flow-to-current liabilities ratio (currentliabilities were $78,000,000 at January 1, 2012), inventoryturnover (inventory was $87,000,000 at January 1, 2012),debt-to-equity ratio, times-interest-earned ratio, return on assets(total assets were $493,000,000 at January 1, 2012), and return oncommon stockholders' equity (common stockholders' equity was$236,000,000 at January 1, 2012).
b. Calculate common-size percentages for each year's incomestatement.
Round answers to two decimal places.
| 2013 | 2012 |
|---|
| Current ratio: | Answer | Answer |
| Quick ratio: | Answer | Answer |
| Operating-cash-flow-to-current-liabilities ratio: | Answer | Answer |
| Inventory turnover: | Answer | Answer |
| Debt-to-equity ratio: | Answer | Answer |
| Times-interest-earned ratio: | Answer | Answer |
| Return on assets: | Answer | Answer |
| Return on common stockholders' equity: | Answer | Answer |
Round answers to one decimal place.
| Income Statements |
|---|
| Year Ended
2013 | Common-
Size | Year Ended
2012 | Common-
Size |
|---|
| Sales revenue | $824,000 | Answer | $682,000 | Answer |
| Cost of goods sold | 545,200 | Answer | 437,920 | Answer |
| Gross profit on sales | 278,800 | Answer | 244,080 | Answer |
| Selling and administrative expenses | 171,400 | Answer | 149,200 | Answer |
| Income before interest expense and income taxes | 107,400 | Answer | 94,880 | Answer |
| Interest expense | 26,500 | Answer | 20,000 | Answer |
| Income before income taxes | 80,900 | Answer | 74,880 | Answer |
| Income tax expense | 26,900 | Answer | 25,300 | Answer |
| Net income | $54,000 | Answer | $49,580 | Answer |
