Financial Accounting: An Integrated Statements Approach, 2nd Edition

Instructions

Determine the following measures for 2007, rounding to nearest single digit after the decimal point:

1. Working capital


2. Current ratio


3. Quick ratio


4. Accounts receivable turnover


5. Number of days’ sales in receivables


6. Inventory turnover


7. Number of days’ sales in inventory


8. Ratio of fixed assets to long-term liabilities


9. Ratio of liabilities to stockholders’ equity


10. Number of times interest charges earned


11. Asset turnover


12. Rate earned on total assets


13. Rate earned on stockholders’ equity


14. Earnings per share on common stock


15. Price-earnings ratio


16. Dividends per share of common stock


17. Dividend yield


18. DuPont formula


19. Leverage formula

Crane Plastics Company has provided the following comparative information:

2008 2007 2006 2005 2004

Net income $ 30,000 $ 50,000 $ 100,000 $ 150,000 $ 150,000

Interest expense 102,000 95,000 85,000 80,000 75,000

Income tax expense 9,000 15,000 30,000 45,000 45,000

Total assets (ending balance) 1,600,000 1,500,000 1,350,000 1,200,000 1,000,000

Total stockholders’ equity

(ending balance) 580,000 550,000 500,000 400,000 250,000

Average total assets 1,550,000 1,425,000 1,275,000 1,100,000 900,000

Average stockholders’ equity 565,000 525,000 450,000 325,000 225,000

You have been asked to evaluate the historical performance of the company over the last five years.

Selected industry ratios have remained relatively steady at the following levels for the last

five years:

2004–200 8

Rate earned on total assets 7%

Rate earned on stockholders’ equity 20%

Number of times interest charges earned 3.0

Ratio of liabilities to stockholders’ equity 2.0

Instructions

1. Prepare four line graphs with the ratio on the vertical axis and the years on the horizontal
   axis for the following four ratios (rounded to two decimal places):
   a. Rate earned on total assets
   b. Rate earned on stockholders’ equity
   c. Number of times interest charges earned
   d. Ratio of liabilities to stockholders’ equity
   Display both the company ratio and the industry benchmark on each graph. That is, each
   graph should have two lines.


2. Prepare an analysis of the graphs in (1).

678 Chapter 14 Financial Statement Analysis

Alternate Problem

14-5B

Profitability and leverage

trend analysis

Goals2, 3