Chapter 12 – Financial Statement Analysyis
12–29
Case 12-24, continued
2013
2012
$ change
% change
Assets
Cash
$997,734
$1,156,835
$(159,101)
(13.8%)
Accounts receivable, net
760,643
759,033
1,610
0.2%
Inventory
376,897
418,633
(41,736)
(10.0%)
Prepaid expenses
277,226
302,649
(25,423)
(8.4%)
Total current assets
2,412,500
2,637,150
(224,650)
(8.5%)
Property & equipment
(net)
547,104
586,526
(39,422)
(6.7%)
Other assets
1,412,709
1,532,816
(120,107)
(7.8%)
Total assets
$4,372,313
$4,756,492
$(384,179)
(8.1%)
Liabilities & Stockholders’
Equity
Short-term borrowings
$117,994
$28,995
$88,999
306.9%
Current portion of long-
term debt
100,000
189,130
(89,130)
(47.1%)
Accounts payable
265,936
349,159
(83,223)
(23.8%)
Accrued expenses
796,473
880,038
(83,565)
(9.5%)
Income taxes payable
182,782
279,849
(97,067)
(34.7%)
Total current liabilities
1,463,185
1,727,171
(263,986)
(15.3%)
525,000
400,000
125,000
31.3%
Other
282,395
243,509
38,886
16.0%
Total noncurrent
liabilities
807,395
643,509
163,886
25.5%
Common stock, $1.00
par value
441,369
441,369
0
0.0%
Additional paid-in capital
1,589,281
1,594,332
(5,051)
(0.3%)
Treasury stock
(935,711)
(473,349)
(462,362)
97.7%
Retained earnings
1,006,794
823,460
183,334
22.3%
Total stockholder’s
equity
2,101,733
2,385,812
(284,079)
(11.9%)
Total liabilities &
stockholders’ equity
$4,372,313
$4,756,492
$(384,179)
(8.1%)
12–30
Case 12-24, continued
b.
2013
2012
2011
Sales revenue
100.00%
100.00%
100.00%
Cost of goods sold
54.18%
52.76%
51.02%
Gross profit
45.82%
47.24%
48.98%
Operating expenses
32.99%
32.92%
33.14%
Operating income
12.83%
14.32%
15.84%
Interest expense, net
0.82%
1.14%
1.24%
Other non-operating (income), net
(0.58%)
(0.46%)
(0.34%)
Income before taxes
12.59%
13.64%
14.94%
Income tax expense
4.54%
2.42%
4.10%
Net income
8.05%
11.22%
10.84%
Chapter 12 – Financial Statement Analysyis
12–31
Case 12-24, continued
2013
2012
Assets
Cash
22.82%
24.32%
Accounts receivable, net
17.40%
15.96%
Inventory
8.62%
8.80%
Prepaid expenses
6.34%
6.36%
Total current assets
55.18%
55.44%
Property & equipment (net)
12.51%
12.33%
Other assets
32.31%
32.23%
Total assets
100.00%
100.00%
Liabilities & Stockholders’ Equity
Short-term borrowings
2.70%
0.61%
Current portion of long-term debt
2.29%
3.98%
Accounts payable
6.08%
7.34%
Accrued expenses
18.21%
18.50%
Income taxes payable
4.18%
5.88%
Total current liabilities
33.46%
36.31%
Long-term debt
12.01%
8.41%
Other
6.46%
5.12%
Total noncurrent liabilities
18.47%
13.53%
Stockholders’ equity:
Common stock, $1.00 par value
10.09%
9.28%
Additional paid-in capital
36.35%
33.52%
Retained earnings
23.03%
17.31%
Treasury stock
(21.40%)
(9.95%)
Total stockholders’ equity
48.07%
50.16%
Total liabilities & stockholders’
equity
100.00%
100.00%
12–32
Case 12-24, continued
c. Working capital
2012:
$2,637,150 – $1,727,171 = $909,979
2013:
$2,412,500 – $1,463,185 = $949,315
Current ratio
2012:
$2,637,150
$1,727,171
= 1.53
2013:
$2,412,500
$1,463,185
= 1.65
Acid test ratio
2012:
$1,156,835 + $759,033
$1,727,171
= 1.11
2013:
$997,734 + $760,643
$1,463,185
= 1.20
Accounts Receivable turnover
2013:
$5,179,016
($759,033 + $760,643) ÷ 2
= 6.8 times
Average collection period
2013:
365 days
6.8 times
= 53.7 days
Inventory turnover
2013:
$2,806,148
($418,633 + $376,897) ÷ 2
= 7.1 times
Average days to sell inventory
2013:
365 days
7.1 times
= 51.4 days
Chapter 12 – Financial Statement Analysyis
12–33
Case 12-24, continued
d. Gross Margin
2011:
$2,429,483
$4,960,100
= 49.0%
2012:
$2,410,725
$5,102,786
= 47.2%
2013:
$2,372,868
$5,179,016
= 45.8%
Return on assets
2013:
$235,030
$417,019 + ($42,279 × (1 – ))
$652,049
($4,372,313 + $4,756,492) ÷ 2
= 9.7%
Return on common stockholders’ equity
2013:
$417,019
($2,385,812 + $2,101,733) ÷ 2
= 18.6%
e. Debt ratio
2012:
$1,727,171 + $643,509
$4,756,492
= 50%
2013:
$1,463,185 + $807,395
$4,372,313
= 52%
Debt-to-equity ratio
2012:
$1,727,171 + $643,509
$2,385,812
= 0.99
2013:
$1,463,185 + $807,395
$2,101,733
= 1.08
12–34
Case 12-24, continued
Times-interest-earned ratio
2011:
$785,710 + $16,755
$61,611
= 13.02
2012:
$730,817 + $23,518
$58,081
= 12.99
2013:
$664,529 + $29,799
$42,279
= 16.42
Leverage:
2013
2012
2011
Debt ratio
52%
50%
Debt-to-equity ratio
1.08
0.99
Times-interest-earned ratio
16.42
12.99
13.02
generating cash to support operations.
Chapter 12 – Financial Statement Analysyis
12–35
Case 12-25
b. Jennifer Adam’s integrity and credibility are at stake in this situation.
d. Even though the sale would increase the current ratio, Adams should