Instructions
a. Determine the following measures for 2007:- Rate earned on stockholders’ equity
- Rate earned on total assets
- Leverage ratio
- Profit margin
- Asset turnover
- Accounts receivable turnover
- Number of days’ sales in receivables
- Inventory turnover
- Number of days’ sales in inventory
- Fixed asset turnover
- Current ratio
- Quick ratio
- Ratio of fixed assets to long-term liabilities
- Ratio of liabilities to stockholders’ equity
- Number of times interest charges earned
- Earnings per share
- Price-earnings ratio
- Dividend yield
b. Compute the DuPont formula for 2007.Solution
(Ratios are rounded to the nearest single digit after the decimal point.)a. 1. Rate earned on stockholders’ equity: 13.6%
$245,000 ÷ [($1,883,000 + $1,723,000) ÷ 2]- Rate earned on total assets: 7.0%
$245,000 ÷ [($3,843,000 + $3,173,000) ÷ 2] - Leverage ratio: 2.0
[($3,843,000$3,173,000) ÷ 2] [($1,883,000$1,723,000) ÷ 2] - Profit margin: 4.9%
$245,000 ÷ $5,000,000 - Asset turnover: 1.4
$5,000,000 ÷ [($3,843,000 + $3,173,000) ÷ 2] - Accounts receivable turnover: 13.3
$5,000,000 ÷ [($425,000 + $325,000) ÷ 2] - Number of days’ sales in receivables: 27.4 days
$5,000,000 ÷ 365 = $13,699
($425,000$325,000)/2 ÷ $13,699 - Inventory turnover: 5.7
$3,400,000 ÷ [($720,000 + $480,000) ÷ 2] - Number of days’ sales in inventory: 64.4 days
$3,400,000 ÷ 365 = $9,315
[($720,000$480,000) ÷ 2] ÷ $9,315 - Fixed asset turnover: 2.5
$5,000,000[($2,093,000$1,948,000) ÷ 2] - Current ratio: 2.0
$1,500,000 ÷ $750,000 - Quick ratio: 1.0
$750,000 ÷ $750,000 - Ratio of fixed assets to long-term liabilities: 1.7
$2,093,000 ÷ $1,210,000 - Ratio of liabilities to stockholders’ equity: 1.0
$1,960,000 ÷ $1,883,000 - Number of times interest charges earned: 6.2
($545,000 + $105,000) ÷ $105,000
658 Chapter 14 Financial Statement Analysis