BUS108 Week 4 Assignment: The last two years of financial statements for Carver Industries are as follows

BUS108 Week 4 Assignment: The last two years of financial statements for Carver Industries are as follows

The last two years of financial statements for Carver Industries are as follows:

Carver Industries

Balance Sheet for December 31, 2012 and 2013

2012 2013
Cash $ 11,250 $ 650
Accounts receivable 15,625 20,800
Inventories 36,250 59,150
Total current assets $ 63,125 $ 80,600
Land $ 25,000 $ 33,800
Buildings and equipment 87,500 130,000
Less: Accumulated depreciation $ (35,000) $ (49,400)
Total fixed assets 77,500 114,400
Total assets $ 140,625 $ 195,000
Accounts payable $ 13,125 $ 28,600
Short-term bank notes 21,250 61,100
Total current liabilities $ 34,375 $ 89,700
Long-term debt $ 35,938 $ 29,835
Common stock 39,375 40,950
Retained earnings 30,938 34,515
Common equity $ 70,313 $ 75,465
Total debt and equity $ 140,625 $ 195,000

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Carver Industries
Income Statements
Years Ending December 31, 2012 and 2013
2012 2013
Sales (all credit) $ 187,500 $ 400,000
Cost of goods sold -112,500 -240,000
Gross profit $ 75,000) $ 0,000)
Operating expenses
Fixed cash operating expenses $ (31,500) $ (52,500)
Variable operating expenses -18,750 -40,000
Depreciation expense -6,750 -25,000
Total operating expenses $ (57,000) $ (117,500)
Earnings before interest and taxes $ 18,000 $ 42,500
Interest expenses -5,719 -9,094
Earnings before taxes $ 12,281 $ 33,407
Taxes -6,141 -16,141
Net income $ 6,141 $ 16,703

a. Calculate the following financial ratios for 2012 and 2013: (Answered)

2012 2013 Industry Averages
Current ratio 2
Acid-test ratio 0.8
Average collection period 37 days
Inventory turnover 2.5
Debt ratio 58.00%
Times interest earned 3.8
Operating profit margin 10.00%
Total asset turnover 1.14
Fixed asset turnover 1.4
Operating return on assets 11.40%
Return on equity 9.50%

b. Evaluate the firm’s financial position at the end of 2012 in terms of its liquidity, capital structure, asset management efficiency, and profitability. (Answered)

c. At the end of 2013 the firm has 5,000 shares of common stock outstanding, selling for $15 each. What were the firm’s (i) earnings per share, (ii) price-earnings ratio, and (iii) market-to-book ratio? (Answered)

No. of shares in common Stock outstanding 5,000
Market price per share $15.00

d. What observations can you make about the financial condition and performance of the firm from your answers to parts a through c? (Answered)

 

Course: BUS108 Principles of Finance
School: Community College of Alleghany County