Using the financial statements for the Goodyear Calendar Company, calculate the 13 basic ratios found in the chapter. Computing all the ratios (LO2)
Block-Hirt-Danielsen: Foundations of Financial Management, 13th Edition II. Financial Analysis and Planning 3. Financial Analysis
Chapter 3 Financial Analysis 85
GOODYEAR CALENDAR COMPANY
Balance Sheet December 31, 2008
Assets
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,000 Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 Accounts receivable (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,000 Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 370,000 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 Plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000 Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . (100,000) Net plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,000 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 760,000
GOODYEAR CALENDAR COMPANY
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 90,000 Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 Accrued taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,000 Long-term liabilities: Bonds payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,000 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280,000 Stockholders' equity Preferred stock, $100 par value . . . . . . . . . . . . . . . . . . . . . . . . 90,000 Common stock, $1 par value . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000 Capital paid in excess of par . . . . . . . . . . . . . . . . . . . . . . . . . . 230,000 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . 480,000 Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . $ 760,000
GOODYEAR CALENDAR COMPANY
Income Statement
For the Year Ending December 31, 2008
Sales (on credit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,000,000 Less: Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,300,000 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 700,000 Less: Selling and administrative expenses . . . . . . . . . . . . . . . 400,000* Operating profit (EBIT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 Less: Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 Earnings before taxes (EBT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280,000 Less: Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,000 Earnings after taxes (EAT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 168,000 *Includes $10,000 in lease payments.
SOLUTION PREVIEW
Profitability Ratios:
1. Profit margin = net income/sales
Profit margin = $168,000/$2,000,000 = 8.40%
2. Return on assets (investment) =
net income/total assets
Return on assets (investment) = $168,000/$760,000 = 22.1%
