Hyrkas Corporation's most recent balance sheet and income statement appear below:Balance SheetDecember 31, Year 2 and Year 1(in thousands of dollars) Year 2Year 1Assets Current assets: Cash$150 $190 Accounts receivable, net 220 240 Inventory 190 160 Prepaid expenses 20 20 Total current assets 580 610 Plant and equipment, net 760 740 Total assets$1,340 $1,350 Liabilities and Stockholders' Equity Current liabilities: Accounts payable$160 $190 Accrued liabilities 50 50 Notes payable, short term 40 40 Total current liabilities 250 280 Bonds payable 150 180 Total liabilities 400 460 Stockholders' equity: Common stock, $2 par value 200 200 Additional paid-in
capital 330 330 Retained earnings 410 360 Total stockholders' equity 940 890 Total liabilities & stockholders' equity$1,340 $1,350 Income StatementFor the Year Ended December 31, Year 2(in thousands of dollars)Sales (all on account)$1,200 Cost of goods sold 730 Gross margin 470 Selling and administrative expense 335 Net operating income 135 Interest expense 21 Net income before taxes 114 Income taxes (30%) 34 Net income$80 Dividends on common stock during Year 2 totaled $30 thousand. The market price of common stock at the end of Year 2 was $6.90 per share.Required:Compute the following for Year 2:a. Gross margin percentage.b. Earnings per share.c. Price-earnings ratio.d. Dividend payout ratio.e. Dividend yield ratio.f. Return on total assets.g. Return on equity.h. Book value per share.i. Working capital.j. Current ratio.k. Acid-test (quick) ratio.l. Accounts receivable turnover.m. Average collection period.n. Inventory turnover.o. Average sale period.p. Times interest earned ratio.q. Debt-to-equity ratio.
What will be an ideal response?
a. Gross margin percentage = Gross margin ÷ Sales
= $470 ÷ $1,200 = 39.2%
b. Earnings per share= Net income ÷ Average number of common shares outstanding*
= $80 ÷ (100 shares + 100 shares)/2 = $0.80 per share
*Number of common shares outstanding = Common stock ÷ Par value
= $200 ÷ $2 per share = 100 shares
c. Price-earnings ratio= Market price per share ÷ Earnings per share (see above)
= $6.90 per share ÷ $0.80 per share = 8.625
d. Dividend payout ratio= Dividends per share* ÷ Earnings per share (see above)
= $0.30 per share ÷ $0.80 per share = 37.5%
*Dividends per share= Dividends ÷ Number of common shares outstanding (see above)
= $30 ÷ 100 shares = $0.30 per share
e. Dividend yield ratio= Dividends per share (see above) ÷ Market price per share
= $0.30 per share ÷ $6.90 per share = 4.35%
f. Return on total assets= Adjusted net income* ÷ Average total assets**
= $94.7 ÷ $1,345 = 7.04%
*Adjusted net income= Net income + [Interest expense × (1 - Tax rate)]
= $80 + [$21 × (1 - 0.30)] = $94.7
**Average total assets = ($1,340 + $1,350) ÷ 2 = $1,345
g. Return on equity = Net income ÷ Average total stockholders' equity*
= $80 ÷ $915 = 8.7%
*Average total stockholders' equity = ($940 + $890) ÷ 2 = $915
h. Book value per share= Total stockholders' equity ÷ Number of common shares outstanding*
= $940 ÷ 100 shares = $9.40 per share
*Number of common shares outstanding= Common stock ÷ Par value
= $200 ÷ $2 per share = 100 shares
i. Working capital= Current assets - Current liabilities
= $580 - $250 = $330
j. Current ratio= Current assets ÷ Current liabilities
= $580 ÷ $250 = 2.32
k. Acid-test (quick) ratio= Quick assets* ÷ Current liabilities
= $370 ÷ $250 = 1.48
*Quick assets= Cash + Marketable securities + Accounts receivable + Short-term notes receivable
= $150 + $0 + $220 + $0 = $370
l. Accounts receivable turnover= Sales on account ÷ Average accounts receivable*
= $1,200 ÷ $230 = 5.22
*Average accounts receivable = ($220 + $240) ÷ 2 = $230
m. Average collection period = 365 days ÷ Accounts receivable turnover (see above)
= 365 days ÷ 5.22 = 69.9 days
n. Inventory turnover = Cost of goods sold ÷ Average inventory balance*
= $730 ÷ $175 = 4.17
*Average inventory balance = ($190 + $160) ÷ 2 = $175
o. Average sale period = 365 days ÷ Inventory turnover (see above)
= 365 days ÷ 4.17 = 87.5 days
p. Times interest earned ratio = Earnings before interest expense and income taxes ÷ Interest expense
= $135 ÷ $21 = 6.43
q. Debt-to-equity ratio = Total liabilities ÷ Stockholders' equity
= $400 ÷ $940 = 0.43
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