Business Financial Analysis

Business Financial Analysis

Business Financing and Planning Financial Ratio Analysis Enter the cells with a yellow highlight 1) The year & year name for the left and right column years. 2) The requested data for the Balance Sheet for both years. 3) The requested data for the Income Statement for both years. 4) The other requested data.

Company Name:

Company Name Year 2007 2006

Right column year: Left column year:

Year Name Current Year Previous Year

(Please note that the majority of the financial analysis is performed on the left column year.)

Company Name Comparative Balance Sheets Assets

2006 Previous Year

Cash Short-term securities Accounts receivable Inventory Prepaid expenses Current Assets Gross: Plant & Equipment Less: Accum. depreciation Net plant & equipment Other tangible assets Intangible assets Total Assets

2007 Current Year

$95,000 $55,000 $120,000 $90,000 $37,000 $397,000 $629,000 $118,000 $511,000 $4,000 $3,000 $915,000

$90,000 $62,000 $150,000 $100,000 $35,000 $437,000 $650,000 $135,000 $515,000 $5,000 $3,000 $960,000

$22,000 $25,000 $270,000 $33,000 $1,200 $35,000 $386,200 $187,000 $25,000 $162,000 $100,000 $50,000 $12,800 $204,000

$25,000 $30,000 $285,000 $33,000 $2,000 $33,000 $408,000 $162,000 $30,000 $132,000 $100,000 $50,000 $20,000 $250,000

$915,000

$960,000

$3,550,000 $3,050,000

$3,700,000 $3,100,000

Liabilities & Equity Short-term notes payable Curr. maturities, l.t. debt Accounts payable Accrued expenses Taxes payable Other curr. liabilities Current Liabilites Long-term debt Less: curr. maturities Net long-term debt Preferred stock Common stock (@ par value) Capital surplus Retained earnings Total Liabilities & Stockholders' Equity

Comparative Income Statements Net Sales Cost of goods sold

Page 1

Business Financial Analysis Gross profit General, selling & admin. Operating profit Interest expense Other income (expense) Pretax income Income taxes Net income

$500,000 $277,000 $223,000 $5,500 $400 $217,900 $65,000 $152,900

$600,000 $285,000 $315,000 $6,000 $500 $309,500 $75,000 $234,500

Other Requested Data: Common stock valued at an earnings multiple of: (Price earnings multiple or P/E ratio) Common stock dividends paid per share in current yr: Par value per share of common stock: Percent return on preferred stock: Par value per share of prefered stock: Preferred stock is convertible into how many shares of common stock: Intangible net worth: Depreciation in right column year was: Depreciation in left column year was: Purchases are what percent of cost of sales: Credit sales are what percent of total sales:

12 $2.00 $1.00 10.0% $10.00 10 $10,000 $75,000 $100,000 66.7% 100.0%

Company Name Summary of Financial Ratio Analysis

2007

1. Liquidity Ratios Net Working Capital: Net Working Capital to Sales: Net Working Capital to Total Assets: Current Ratio: Quick Assets: Net Quick Assets: Net Quick Ratio: Cash Ratio: Basic Defense Interval:

$29,000 0.01 0.03 1.07 $302,000 -$106,000 0.74 0.37 32.6

2. Leverage and Capital Structure Ratios Tangible equity Long-term debt to tangible equity ratio: Total debt to equity ratio: Total debt to assets (debt to capital) ratio: Fixed assets to equity ratio: Current liabilities to equity ratio: Overtrading ratio

$410,000 0.40 1.29 0.56 1.23 0.97 0.98

3. Profitability & Values Ratios Net profit margin (return on sales): Rate of return on investment (ROI): Rate of return on assets (ROA): Rate of return on equity (ROE): Rate of return on common stockholders equity: Gross profit margin: Operating margin: Operating ratio: Asset turnover: Earning power on assets: Book value:

6.3% 42.5% 24.4% 55.8% 70.2% 16.2% 8.5% 0.91 3.9 33.1% $6.40 Page 2

Business Financial Analysis Earnings per share (common stock): Cash flow per share (common stock): Market value per share (common stock): Capitalization rate: Yield: Payout ratio (common stock): Dilution percent: Diluted earnings per share:

$4.49 $6.69 $53.88 8.3% 3.71% 44.5% 66.7% $1.56

4. Turnover & Activity Ratios Accounts payable days purchases outstanding: Accounts receivable aver. collection period: Inventory turnover: Average days for inventory to sell: Asset turnover: Gross margin return on inventory:

50.3 13.3 32.6 11.2 3.9 3.26

5. Coverage Ratios Cash flow times interest earned ratio: Times interest earned ratio: Cash flow to current maturities ratio:

50.9 52.6 10.0

6. Source and Application of Funds The source and application of funds schedule reconciles the balance sheet and income statement. It reflects where capital came from (internal and external sources) and how it was used. The type of activity from the Statement of Cash Flows is shown in parentheses. Sources of Capital: Net Income (operating) Depreciation (operating) Long-term debt (financing)

$234,500 $100,000 $132,000 Total Sources

Uses of Cash: Capital expenditures (investing) Cash dividends (financing): Preferred stock Common stock Increase in working cap. (operating)

$466,500

$21,000 $10,000 $100,000 $18,200 Total Uses

$149,200

Reconciliation of Net Income to Net Cash Provided (Used) by Operating Activities Net Income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Other (Increase) decrease in assets and increase (decrease) in liabilties: Cash Short-term securities Accounts receivable Inventory Prepaid expenses Notes payable Accounts payable Curr. maturities long-term debt Accrued expenses Taxes payable Other curr. liab.

$234,500

$100,000 $0

$5,000 ($7,000) ($30,000) ($10,000) $2,000 $3,000 $15,000 $5,000 $0 $800 ($2,000) Page 3

Business Financial Analysis Net Cash Provided (Used) by Operating Actvities

$316,300

Changes in Working Capital: Increase (decrease) in cash Increase (decrease) in short-term securities Increase (decrease) in accounts receivable Increase (decrease) in inventory Increase (decrease) in prepaid expenses Decrease (increase) in notes payable Decrease (increase) in accounts payable Decrease (increase) in curr. maturities long-term debt Decrease (increase) in accrued expenses Decrease (increase) in taxes payable Decrease (increase) in other curr. liab.

($5,000) $7,000 $30,000 $10,000 ($2,000) ($3,000) ($15,000) ($5,000) $0 ($800) $2,000

Net change in working capital

$18,200

7. Z-Score Analysis to Predict Bankrupcy

Ratio

Answer

Coeff.

Z-Score

2007 Working capital / Total assets

=

0.030

x 1.20

0.036

Retained earnings / Total assets

=

0.260

x 1.40

0.365

Earnings before interest & tax / Total assets

=

0.329

x 3.30

1.085

Net worth / Total liabilities

=

0.778

x 0.60

0.467

Net Sales / Total assets

=

3.854

x 1.00

3.854

Total Z-Score

=

5.806

2006 Working capital / Total assets

=

0.012

x 1.20

0.077

Retained earnings / Total assets

=

0.223

x 1.40

0.727

Earnings before int. & tax / Total assets

=

0.244

x 3.30

1.641

Net worth / Total liabilities

=

0.669

x 0.60

0.703

Net Sales / Total assets

=

3.880

x 1.00

3.880

Total Z-Score

=

7.027

Key: >= 3.00 Safe from Bankruptcy <= 1.80 Destined for Bankruptcy Page 4

Business Financial Analysis 1.81 to 2.99 Danger area

Company Name Detailed Financial Ratio Analysis

2007

1. Liquidity Ratios Net Working Capital

= Current Assets - Current liabilities $29,000 = $437,000 $408,000

Net Working Capital to Sales

= Net working capital / Net Sales 0.01 = $29,000 / $3,700,000

Net Working Capital to Total Assets: = Net working capital / Total assets 0.03 = $29,000 / $960,000 Current Ratio

= Current Assets / Current liabilities 1.07 = $437,000 / $408,000

Quick Assets

Net Quick Assets

= Cash + Short-term securities + Accounts Receivable $302,000 = $152,000 + $150,000 = Quick assets - Current liabilities -$106,000 = $302,000 $408,000

Net Quick Ratio

= Quick assets / Current liabilities 0.74 = $302,000 / $408,000

Cash Ratio

= Cash + Short-term securities / Current liabilities 0.37 = $152,000 / $408,000

Basic Defense Interval

= Cash + Short-term securities + Accounts Receivable / Daily Expenses 32.6 = $302,000 / $9,274

Percentage composition of current assets: Cash Short-term securities Accounts receivable Inventory Prepaid expenses Current Assets

$90,000 $62,000 $150,000 $100,000 $35,000 $437,000

21% 14% 34% 23% 8% 100%

2. Leverage and Capital Structure Ratios Tangible equity

= Total equity - intangible net worth $410,000 = $420,000 $10,000

Long-term debt to tangible equity ratio: = Long-term debt / Tangible equity 0.40 = $132,000 / $410,000 Total debt to equity ratio

= Current liabilities + Long-term debt / Total net worth 1.29 = $540,000 / $420,000

Total debt to assets ratio (or debt to capital ratio): = Current liabilities + Long-term debt / Total assets = Current liabilities + Long-term debt / cur. liab. + l.t. debt + Net worth 0.56 = $540,000 / $960,000 Fixed assets to equity ratio

= Fixed assets / Total net worth 1.23 = $515,000 / $420,000

Page 5

Business Financial Analysis Current liabilities to equity ratio: = Current liabilities / Total net worth 0.97 = $408,000 / $420,000 Overtrading ratio

= Current Liabilities / Net worth - Intangible assets 0.98 = $408,000 / $420,000 $3,000

Capitalization - all long-term capital Net long-term debt Preferred stock Capital surplus Common stock Retained earnings Common stockholders' equity Long-term Capital

$132,000 $100,000 $20,000 $50,000 $250,000

24% 18% 4% 9% 45%

$320,000 $552,000

58% 100%

3. Profitability & Values Ratios Net profit margin (return on sales): = Net income / Net Sales 6.3% = $234,500 / $3,700,000 Rate of return on capitalization (return on investment, ROI): = Net income / Total capitalization 42.5% = $234,500 / $552,000 Rate of return on assets (ROA): = Net income / Total assets 24.4% = $234,500 / $960,000 Rate of return on equity (ROE): = Net income / Total net worth 55.8% = $234,500 / $420,000 Rate of return on common stockholders' equity: = Net income - Preferred dividend / Common stockholders' equity 70.2% = $224,500 / $320,000 Gross profit margin

Operating margin

Operating ratio

Asset turnover

= Gross profit / Net Sales 16.2% = $600,000 / $3,700,000 = Operating profit / Net Sales 8.5% = $315,000 / $3,700,000 = Cost of goods sold + General, selling & admin. / Net Sales 0.91 = $3,100,000 + $285,000 / $3,700,000 = Net Sales / Operating Assets 3.9 = $3,700,000 / $952,000

Earning power on assets 33.1% = Book value

= Operating margin x Asset turnover 8.5% x 3.89

= Common stockholders' equity / number of shares outstanding $6.40 = $320,000 / 50,000

Note: Compute shares outstanding by dividing common stock (@ par value) on balance sheet by par value per share. Par value is simply a stated value of common stock for accounting and legal purposes. Earnings per share (common stock)

= Net income - Preferred dividend / Number of shares outstanding $4.49 = $234,500 $10,000

Page 6

/

50,000

Business Financial Analysis Cash flow per share (common stock)

= Net income + Depreciation / Number of shares outstanding $6.69 =

Market value

Capitalization rate

Yield

$234,500

+

$100,000

/

50,000

= Earnings per share (EPS) x Price earnings multiple (P/E) $53.88 = $4.49 x 12.00 = 1 / Price earnings multiple (P/E) 8.3% = 1 / 12.00 = Dividends per share / price per share 3.71% = $2.00 / $53.88

Common Stock Payout ratio = Common stock dividends paid / Net income - Preferred dividend 44.5% = $100,000 / $224,500 Dilution percent

Diluted earnings per share

= Com. stock converted from pref. stock / Total shares outstanding after conversion 66.7% = 100,000 / 150,000 = Total net income / Total shares outstanding after conversion $1.56 = $234,500 / 150,000

4. Turnover & Activity Ratios Accounts payable days purchases outstanding = Accounts payable x 365 / Annual purchases 50.3 = $285,000 x 365

/

$2,067,700

Accounts receivable average collection period = Average accounts recievable x 365 / Annual credit sales 13.3 = $135,000 x 365 / $3,700,000 Inventory turnover

Average days for inventory to sell

= Cost of goods sold / Average ending inventory 32.6 = $3,100,000 / $95,000 = Average ending inventory x 365 / Cost of goods sold 11.2 =

Assset turnover

Gross margin return on inventory

= 3.9 =

$95,000

x

365

/

$3,100,000

Net Sales / Average Assets $3,700,000 / $937,500

= (Pretax Income / Net Sales) x (Net sales / Aver. ending inventory) 3.26 = $309,500 / $3,700,000 x $3,700,000 / $95,000

5. Coverage Ratios Cash flow times interest earned ratio: = Earnings before interest and taxes + Depreciation - Dividends / Total debt interest expense 50.9 = $315,500 + $100,000 - $110,000 / $6,000 Times interest earned ratio

= Earnings before interest and taxes / Total debt interest expense 52.6 = $315,500 / $6,000

Cash flow to current maturities ratio: = Pretax income + Depreciation - Dividends / Current Maturities of long-term debt 10.0 = $299,500 / $30,000

Page 7

Business Financial Analysis SCR

Business Financing and Planning Financial Ratio Analysis Enter the cells with a yellow highlight 1) The year & year name for the left and right column years. 2) The requested data for the Balance Sheet for both years. 3) The requested data for the Income Statement for both years. 4) The other requested data.

Company Name:

Company Name Year 2007 2006

Right column year: Left column year:

Year Name Current Year Previous Year

(Please note that the majority of the financial analysis is performed on the left column year.)

Company Name Comparative Balance Sheets Assets

2006 Previous Year

Cash Short-term securities Accounts receivable Inventory Prepaid expenses Current Assets Gross: Plant & Equipment Less: Accum. depreciation Net plant & equipment Other tangible assets Intangible assets Total Assets

2007 Current Year

$95,000 $55,000 $120,000 $90,000 $37,000 $397,000 $629,000 $118,000 $511,000 $4,000 $3,000 $915,000

$90,000 $62,000 $150,000 $100,000 $35,000 $437,000 $650,000 $135,000 $515,000 $5,000 $3,000 $960,000

$22,000 $25,000 $270,000 $33,000 $1,200 $35,000 $386,200 $187,000 $25,000 $162,000 $100,000 $50,000 $12,800 $204,000

$25,000 $30,000 $285,000 $33,000 $2,000 $33,000 $408,000 $162,000 $30,000 $132,000 $100,000 $50,000 $20,000 $250,000

$915,000

$960,000

$3,550,000 $3,050,000

$3,700,000 $3,100,000

Liabilities & Equity Short-term notes payable Curr. maturities, l.t. debt Accounts payable Accrued expenses Taxes payable Other curr. liabilities Current Liabilites Long-term debt Less: curr. maturities Net long-term debt Preferred stock Common stock (@ par value) Capital surplus Retained earnings Total Liabilities & Stockholders' Equity

Comparative Income Statements Net Sales Cost of goods sold

Page 1

Business Financial Analysis SCR Gross profit General, selling & admin. Operating profit Interest expense Other income (expense) Pretax income Income taxes Net income

$500,000 $277,000 $223,000 $5,500 $400 $217,900 $65,000 $152,900

$600,000 $285,000 $315,000 $6,000 $500 $309,500 $75,000 $234,500

Other Requested Data: Common stock valued at an earnings multiple of: (Price earnings multiple or P/E ratio) Common stock dividends paid per share in current yr: Par value per share of common stock: Percent return on preferred stock: Par value per share of prefered stock: Preferred stock is convertible into how many shares of common stock: Intangible net worth: Depreciation in right column year was: Depreciation in left column year was: Purchases are what percent of cost of sales: Credit sales are what percent of total sales:

12 $2.00 $1.00 10.0% $10.00 10 $10,000 $75,000 $100,000 66.7% 100.0%

Company Name Summary of Financial Ratio Analysis

2007

1. Liquidity Ratios Net Working Capital: Net Working Capital to Sales: Net Working Capital to Total Assets: Current Ratio: Quick Assets: Net Quick Assets: Net Quick Ratio: Cash Ratio: Basic Defense Interval:

$29,000 0.01 0.03 1.07 $302,000 -$106,000 0.74 0.37 32.6

2. Leverage and Capital Structure Ratios Tangible equity Long-term debt to tangible equity ratio: Total debt to equity ratio: Total debt to assets (debt to capital) ratio: Fixed assets to equity ratio: Current liabilities to equity ratio: Overtrading ratio

$410,000 0.40 1.29 0.56 1.23 0.97 0.98

3. Profitability & Values Ratios Net profit margin (return on sales): Rate of return on investment (ROI): Rate of return on assets (ROA): Rate of return on equity (ROE): Rate of return on common stockholders equity: Gross profit margin: Operating margin: Operating ratio: Asset turnover: Earning power on assets: Book value:

6.3% 42.5% 24.4% 55.8% 70.2% 16.2% 8.5% 0.91 3.9 33.1% $6.40 Page 2

Business Financial Analysis SCR Earnings per share (common stock): Cash flow per share (common stock): Market value per share (common stock): Capitalization rate: Yield: Payout ratio (common stock): Dilution percent: Diluted earnings per share:

$4.49 $6.69 $53.88 8.3% 3.71% 44.5% 66.7% $1.56

4. Turnover & Activity Ratios Accounts payable days purchases outstanding: Accounts receivable aver. collection period: Inventory turnover: Average days for inventory to sell: Asset turnover: Gross margin return on inventory:

50.3 13.3 32.6 11.2 3.9 3.26

5. Coverage Ratios Cash flow times interest earned ratio: Times interest earned ratio: Cash flow to current maturities ratio:

50.9 52.6 10.0

6. Source and Application of Funds The source and application of funds schedule reconciles the balance sheet and income statement. It reflects where capital came from (internal and external sources) and how it was used. The type of activity from the Statement of Cash Flows is shown in parentheses. Sources of Capital: Net Income (operating) Depreciation (operating) Long-term debt (financing)

$234,500 $100,000 $132,000 Total Sources

Uses of Cash: Capital expenditures (investing) Cash dividends (financing): Preferred stock Common stock Increase in working cap. (operating)

$466,500

$21,000 $10,000 $100,000 $18,200 Total Uses

$149,200

Reconciliation of Net Income to Net Cash Provided (Used) by Operating Activities Net Income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Other (Increase) decrease in assets and increase (decrease) in liabilties: Cash Short-term securities Accounts receivable Inventory Prepaid expenses Notes payable Accounts payable Curr. maturities long-term debt Accrued expenses Taxes payable Other curr. liab.

$234,500

$100,000 $0

$5,000 ($7,000) ($30,000) ($10,000) $2,000 $3,000 $15,000 $5,000 $0 $800 ($2,000) Page 3

Business Financial Analysis SCR Net Cash Provided (Used) by Operating Actvities

$316,300

Changes in Working Capital: Increase (decrease) in cash Increase (decrease) in short-term securities Increase (decrease) in accounts receivable Increase (decrease) in inventory Increase (decrease) in prepaid expenses Decrease (increase) in notes payable Decrease (increase) in accounts payable Decrease (increase) in curr. maturities long-term debt Decrease (increase) in accrued expenses Decrease (increase) in taxes payable Decrease (increase) in other curr. liab.

($5,000) $7,000 $30,000 $10,000 ($2,000) ($3,000) ($15,000) ($5,000) $0 ($800) $2,000

Net change in working capital

$18,200

7. Z-Score Analysis to Predict Bankrupcy

Ratio

Answer

Coeff.

Z-Score

2007 Working capital / Total assets

=

0.030

x 1.20

0.036

Retained earnings / Total assets

=

0.260

x 1.40

0.365

Earnings before interest & tax / Total assets

=

0.329

x 3.30

1.085

Net worth / Total liabilities

=

0.778

x 0.60

0.467

Net Sales / Total assets

=

3.854

x 1.00

3.854

Total Z-Score

=

5.806

2006 Working capital / Total assets

=

0.012

x 1.20

0.077

Retained earnings / Total assets

=

0.223

x 1.40

0.727

Earnings before int. & tax / Total assets

=

0.244

x 3.30

1.641

Net worth / Total liabilities

=

0.669

x 0.60

0.703

Net Sales / Total assets

=

3.880

x 1.00

3.880

Total Z-Score

=

7.027

Key: >= 3.00 Safe from Bankruptcy <= 1.80 Destined for Bankruptcy Page 4

Business Financial Analysis SCR 1.81 to 2.99 Danger area

Company Name Detailed Financial Ratio Analysis

2007

1. Liquidity Ratios Net Working Capital

= Current Assets - Current liabilities $29,000 = $437,000 $408,000

Net Working Capital to Sales

= Net working capital / Net Sales 0.01 = $29,000 / $3,700,000

Net Working Capital to Total Assets: = Net working capital / Total assets 0.03 = $29,000 / $960,000 Current Ratio

= Current Assets / Current liabilities 1.07 = $437,000 / $408,000

Quick Assets

Net Quick Assets

= Cash + Short-term securities + Accounts Receivable $302,000 = $152,000 + $150,000 = Quick assets - Current liabilities -$106,000 = $302,000 $408,000

Net Quick Ratio

= Quick assets / Current liabilities 0.74 = $302,000 / $408,000

Cash Ratio

= Cash + Short-term securities / Current liabilities 0.37 = $152,000 / $408,000

Basic Defense Interval

= Cash + Short-term securities + Accounts Receivable / Daily Expenses 32.6 = $302,000 / $9,274

Percentage composition of current assets: Cash Short-term securities Accounts receivable Inventory Prepaid expenses Current Assets

$90,000 $62,000 $150,000 $100,000 $35,000 $437,000

21% 14% 34% 23% 8% 100%

2. Leverage and Capital Structure Ratios Tangible equity

= Total equity - intangible net worth $410,000 = $420,000 $10,000

Long-term debt to tangible equity ratio: = Long-term debt / Tangible equity 0.40 = $132,000 / $410,000 Total debt to equity ratio

= Current liabilities + Long-term debt / Total net worth 1.29 = $540,000 / $420,000

Total debt to assets ratio (or debt to capital ratio): = Current liabilities + Long-term debt / Total assets = Current liabilities + Long-term debt / cur. liab. + l.t. debt + Net worth 0.56 = $540,000 / $960,000 Fixed assets to equity ratio

= Fixed assets / Total net worth 1.23 = $515,000 / $420,000

Page 5

Business Financial Analysis SCR Current liabilities to equity ratio: = Current liabilities / Total net worth 0.97 = $408,000 / $420,000 Overtrading ratio

= Current Liabilities / Net worth - Intangible assets 0.98 = $408,000 / $420,000 $3,000

Capitalization - all long-term capital Net long-term debt Preferred stock Capital surplus Common stock Retained earnings Common stockholders' equity Long-term Capital

$132,000 $100,000 $20,000 $50,000 $250,000

24% 18% 4% 9% 45%

$320,000 $552,000

58% 100%

3. Profitability & Values Ratios Net profit margin (return on sales): = Net income / Net Sales 6.3% = $234,500 / $3,700,000 Rate of return on capitalization (return on investment, ROI): = Net income / Total capitalization 42.5% = $234,500 / $552,000 Rate of return on assets (ROA): = Net income / Total assets 24.4% = $234,500 / $960,000 Rate of return on equity (ROE): = Net income / Total net worth 55.8% = $234,500 / $420,000 Rate of return on common stockholders' equity: = Net income - Preferred dividend / Common stockholders' equity 70.2% = $224,500 / $320,000 Gross profit margin

Operating margin

Operating ratio

Asset turnover

= Gross profit / Net Sales 16.2% = $600,000 / $3,700,000 = Operating profit / Net Sales 8.5% = $315,000 / $3,700,000 = Cost of goods sold + General, selling & admin. / Net Sales 0.91 = $3,100,000 + $285,000 / $3,700,000 = Net Sales / Operating Assets 3.9 = $3,700,000 / $952,000

Earning power on assets 33.1% = Book value

= Operating margin x Asset turnover 8.5% x 3.89

= Common stockholders' equity / number of shares outstanding $6.40 = $320,000 / 50,000

Note: Compute shares outstanding by dividing common stock (@ par value) on balance sheet by par value per share. Par value is simply a stated value of common stock for accounting and legal purposes. Earnings per share (common stock)

= Net income - Preferred dividend / Number of shares outstanding $4.49 = $234,500 $10,000

Page 6

/

50,000

Business Financial Analysis SCR Cash flow per share (common stock)

= Net income + Depreciation / Number of shares outstanding $6.69 =

Market value

Capitalization rate

Yield

$234,500

+

$100,000

/

50,000

= Earnings per share (EPS) x Price earnings multiple (P/E) $53.88 = $4.49 x 12.00 = 1 / Price earnings multiple (P/E) 8.3% = 1 / 12.00 = Dividends per share / price per share 3.71% = $2.00 / $53.88

Common Stock Payout ratio = Common stock dividends paid / Net income - Preferred dividend 44.5% = $100,000 / $224,500 Dilution percent

Diluted earnings per share

= Com. stock converted from pref. stock / Total shares outstanding after conversion 66.7% = 100,000 / 150,000 = Total net income / Total shares outstanding after conversion $1.56 = $234,500 / 150,000

4. Turnover & Activity Ratios Accounts payable days purchases outstanding = Accounts payable x 365 / Annual purchases 50.3 = $285,000 x 365

/

$2,067,700

Accounts receivable average collection period = Average accounts recievable x 365 / Annual credit sales 13.3 = $135,000 x 365 / $3,700,000 Inventory turnover

Average days for inventory to sell

= Cost of goods sold / Average ending inventory 32.6 = $3,100,000 / $95,000 = Average ending inventory x 365 / Cost of goods sold 11.2 =

Assset turnover

Gross margin return on inventory

= 3.9 =

$95,000

x

365

/

$3,100,000

Net Sales / Average Assets $3,700,000 / $937,500

= (Pretax Income / Net Sales) x (Net sales / Aver. ending inventory) 3.26 = $309,500 / $3,700,000 x $3,700,000 / $95,000

5. Coverage Ratios Cash flow times interest earned ratio: = Earnings before interest and taxes + Depreciation - Dividends / Total debt interest expense 50.9 = $315,500 + $100,000 - $110,000 / $6,000 Times interest earned ratio

= Earnings before interest and taxes / Total debt interest expense 52.6 = $315,500 / $6,000

Cash flow to current maturities ratio: = Pretax income + Depreciation - Dividends / Current Maturities of long-term debt 10.0 = $299,500 / $30,000

Page 7