Chapter 15 – Financial Statement Analysis
The company paid total dividends of $100,000 during the year. At the end of Year 2, the
company’s common stock was selling for $38 per share.
Required:
On the basis of the information given above, fill in the blanks with the appropriate figures:
Example: The current ratio at the end of Year 2 would be computed by dividing $1,080,000
by $400,000.
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185. Bedrosian Incorporated has a line of credit from the Belmont National Bank that is due
to be renewed on February 1. The bank has requested the company’s current Income
Statement and Comparative Statements of Financial Position which appear below.
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The bank has also requested that Bedrosian calculate a number of financial ratios. Bedrosian’s
financial ratios have not yet been calculated for this year, but the company’s accounting staff
has gathered the following industry averages for the ratios from various sources.
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Required:
a. Calculate the following financial ratios for this year for Bedrosian Incorporated.
1. Return on total assets.
2. Return on common stockholders’ equity.
3. Current ratio.
4. Acid-test ratio.
5. Debt-to-equity ratio.
6. Times interest earned.
7. Dividend payout ratio.
b. By comparing the ratios calculated in Requirement A with the industry ratios, evaluate
Bedrosian’s operations.
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186. Renbud Computer Services Co. (RCS) specializes in customized software development
for the broadcast and telecommunications industries. The company was started by three
people in 1973 to develop software primarily for a national network to be used in
broadcasting national election results. After sustained and manageable growth for many years,
the company has grown very fast over the last three years, doubling in size.
This growth has placed the company in a challenging financial position. Within thirty days,
RCS will need to renew its $300,000 loan with the Third State Bank of San Marcos. This loan
is classified as a current liability on RCS’s balance sheet. Harvey Renbud, president of RCS,
is concerned about renewing the loan. The bank has requested RCS’s most recent financial
statements which appear below, including balance sheets for this year and last year. The bank
has also requested four ratios relating to operating performance and liquidity.
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Required:
a. Explain why the Third State Bank of San Marcos would be interested in reviewing Renbud
Computer Services Co.’s comparative financial statements and its financial ratios before
renewing the loan.
b. Calculate the following financial ratios for Renbud Computer Services Co.:
1. The current ratio for both this year and last year.
2. Accounts receivable turnover for this year.
3. Return on common stockholders’ equity for this year.
4. The debt-to-equity ratio for both this year and last year.
c. Discuss briefly the limitations and difficulties that can be encountered in using ratio
analysis.
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187. Recent financial statements for Madison Company are given below:
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Madison Company paid dividends of $3.15 per share during the year. The company’s
common stock had a market price of $63 per share on December 31. Assets at the beginning
of the year totaled $1,100,000 and stockholders’ equity totaled $725,000.
Required:
Compute the following:
a. Earnings per share of common stock.
b. Dividend payout ratio.
c. Dividend yield ratio.
d. Price-earnings ratio.
e. Return on total assets.
f. Return on common stockholders’ equity.
g. Was financial leverage positive or negative for the year? Explain.
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188. Financial statements for Qualle Company appear below:
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Dividends during Year 2 totaled $149 thousand, of which $10 thousand were preferred
dividends.
The market price of a share of common stock on December 31, Year 2 was $280.
Required:
Compute the following for Year 2:
a. Earnings per share of common stock.
b. Price-earnings ratio.
c. Dividend yield ratio.
d. Return on total assets.
e. Return on common stockholders’ equity.
f. Book value per share.
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189. Debutiaco Corporation’s most recent balance sheet and income statement appear below:
Dividends on common stock during Year 2 totaled $20 thousand. Dividends on preferred
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stock totaled $10 thousand. The market price of common stock at the end of Year 2 was
$12.00 per share.
Required:
Compute the following for Year 2:
a. Earnings per share (of common stock).
b. Price-earnings ratio.
c. Dividend payout ratio.
d. Dividend yield ratio.
e. Return on total assets.
f. Return on common stockholders’ equity.
g. Book value per share.
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190. Sweetman Corporation has provided the following financial data (in thousands of
dollars):
Net income for Year 2 was $120 thousand. Interest expense was $25 thousand. The tax rate
was 30%. Dividends on common stock during Year 2 totaled $80 thousand. Dividends on
preferred stock totaled $20 thousand. The market price of common stock at the end of Year 2
was $4.75 per share.
Required:
Compute the following for Year 2:
a. Earnings per share (of common stock).
b. Price-earnings ratio.
c. Dividend payout ratio.
d. Dividend yield ratio.
e. Return on total assets.
f. Return on common stockholders’ equity.
g. Book value per share.