P15-26A Using ratios to evaluate a stock investment
Comparative financial statement data of Danfield, Inc., follow:
DANFIELD, INC.
Comparative Income Statement
Years Ended December 31, 2012 and 2011
2012 2011
Net Sales $467,000 $428,000
Cost of goods sold 237,000 218,000
Gross profit $230,000 $210,000
Operating expenses 136,000 134,000
Income from operations $94, 000 $76, 000
Interest expense 9,000 10,000
Income before income tax $85,000 $66,000
Income tax expenses 24,000 27,000
Net income $61,000 $39, 000
DANFIELD, INC.
Comparative Income Statement
Years Ended December 31, 2012 and 2011
2012 2011 2010*
Current assets:
Cash $97,000 $95,000
Current recievables, net 112,000 118,000 $102,000
Inventories 145,000 163,000 203,000
Prepaid expenses 12,000 5,000
Total current assets $366,000 $381,000
Property, plant, and equipment, net 211,000 179,000
Total assets $577,000 $560,000 598,000
Total current liabilities $225,000 $246,000
Total liabilities $339,000 $343,000
Preferred stock, 3% 108, 000 108,000
Common stockholders’ equity , no par 130,000 109, 000
Total liabilities and stockholders’ equity $577,000 $560,000
• Selected 2010 amounts
1. Market price of Danfield’s common stock: $86.58 at December 31, 2012, and $46.54 at December 31, 2011.
2. Common shares outstanding: 12, 000 during 2012 and 10,000 during 2011 and 2010.
3. All sales on credit.
Requirements
1. Compute the following ratios for 2012 and 2011:
a. Current ratio
b. Times-interest earned ratio
c. Inventory turnover
d. Gross profit percentage
e. Debt to equity ratio
f. Rate of return on common stockholder’s equity
g. Earnings per share of common stock
h. Price/earnings ratio
2. Decide (a) whether Danfield’s ability to pay debts and to sell inventory improved or deteriorated during 2012 and (b) whether the investment attractiveness of its common stock appears to have increased or decreased.
Click here for the solution: Comparative financial statement data of Danfield, Inc., follow
