Chapter 14 – Financial Statement Analysis
Market price per share of common stock ($25)
—-—————-——————-—————–
= 14.1
Earnings per share of common stock ($1.77)
Dividends per share of common stock ($1.46)
—-—————-——————-—————-
= 5.8%
Market price per share of common stock ($25)
Assets:
Current assets
Fixed assets (net)
common stock is $25.
Round dollar values to two decimal places and other final answers to one decimal place.
ANSWER:
(a)
Net income ($110,000) + Interest expense ($48,000)
—-—————-——————-——————-—
= 7.1%
Average total assets
(b)
Net income ($110,000)
—-—————-——————-————
=
($1,680,000 + $1,610,000)
Average stockholders’ equity ——————-—-———–
2
(c)
Net income ($110,000) – Preferred dividends ($25,000)
—-—————-——————-——————-—-
= 6.1%
Average common
($1,430,000 + $1,360,000)
stockholders’ equity
—-—————-———–
2
(d)
Net income ($110,000) – Preferred dividends ($25,000)
Shares of common stock outstanding (48,000)
= $1.77
(e)
Chapter 14 – Financial Statement Analysis
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Page 91
Total assets
$2,299,100
$1,949,600
Liabilities:
Current liabilities
$ 313,500
$ 309,600
Long-term liabilities
703,000
545,000
Total liabilities
$1,016,500
$ 854,600
Stockholders’ equity
$1,282,600
$1,095,000
Total liabilities and
stockholders’ equity
$2,299,100
$1,949,600
(a)
Determine the ratio of fixed assets to long-term liabilities for each year.
(b)
Determine the ratio of liabilities to stockholders’ equity for each year.
(c)
Comment on the year–to-year changes for both ratios.
Round your answers to two decimal places.
ANSWER:
(a)
Year 2
Year 1
Ratio of fixed assets to
long-term liabilities
2.10
2.34
(b)
Ratio of liabilities to
stockholders’ equity
0.79
0.78
(c)
In the second year, the margin of safety to creditors is lower.
There are fewer fixed assets on a proportionate basis to protect
the interests of the long-term creditors than in the first year.
Also, the ratio of liabilities to stockholders’ equity has risen
slightly in the second year, which indicates that more of the
company is financed by debt and equity.
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.14–04 – LO: 14–04
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:35 PM
DATE MODIFIED:
10/16/2017 6:37 PM
197. Abigail Company reports the following:
Net income
$ 295,000
Preferred dividends
Average stockholders’ equity
1,000,000
Average common stockholders’ equity
700,000
Determine the (a) return on stockholders’ equity, and (b) return on common stockholders’ equity. Round your answer to
one decimal place.
ANSWER:
(a)
Return on stockholders’ equity = Net income/Average stockholders’ equity
Return on stockholders’ equity = $295,000/$1,000,000
Return on stockholders’ equity = 29.5%
Chapter 14 – Financial Statement Analysis
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Page 97
Shares of preferred stock outstanding
600
Earnings per share on common stock
$102.00
Dividends per share of common stock
$25.00
Net income
$575,000
What is CorpCo’s dividend yield? Write your answer as a percent, rounded to one decimal place.
ANSWER:
CorpCo’s dividend yield is 21.7%, calculated as follows:
Dividends per share of common stock/Market price per share of common stock =
$25.00/$115.00 = 21.7%
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.14–05 – LO: 14–05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN-03 – Measurement
BUSPROG – Analytic
DATE CREATED:
7/22/2017 6:35 PM
DATE MODIFIED:
10/16/2017 6:37 PM
205. CorpCo gathered the following information at the end of the current fiscal year:
Dividends on common stock
$125,000
Market price per share of common stock
$115.00
Shares of common stock outstanding
5,000
Dividends on preferred stock
$65,000
Shares of preferred stock outstanding
600
Earnings per share on common stock
$102.00
Dividends per share of common stock
$25.00
Net income
$575,000
What is CorpCo’s price-earnings ratio? Round your answer to one decimal place.
ANSWER:
CorpCo’s price-earnings ratio is 1.1, calculated as follows:
Market price per share of common stock/Earnings per share of common stock =
$115.00/$102.00 = 1.1
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.14–05 – LO: 14–05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN-03 – Measurement
BUSPROG – Analytic
DATE CREATED:
7/22/2017 6:35 PM