Calculate the 2019 price/earnings ratio and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company?
part 7 solution needeed just
Question # 5:
You are a
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Balance Sheets |
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Assets |
2017 |
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2018 |
|
2019 (Projected) |
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Cash |
$ 9,000 |
|
$ 7,282 |
|
$ 14,000 |
|
Short-Term Investments. |
48,600 |
|
20,000 |
|
71,632 |
|
Accounts Receivable |
351,200 |
|
632,160 |
|
878,000 |
|
Inventories |
715,200 |
|
1,287,360 |
|
1,716,480 |
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Total Current Assets |
$ 1,124,000 |
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$ 1,946,802 |
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$ 2,680,112 |
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Gross Fixed Assets |
491,000 |
|
1,202,950 |
|
1,220,000 |
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Less: |
146,200 |
|
263,160 |
|
383,160 |
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Net Fixed Assets |
$ 344,800 |
|
$ 939,790 |
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$ 836,840 |
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Total Assets |
$ 1,468,800 |
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$ 2,886,592 |
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$ 3,516,952 |
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Liabilities And Equity |
2017 |
|
2018 |
|
2019 (Projected) |
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Accounts Payable |
$ 145,600 |
|
$ 324,000 |
|
$ 359,800 |
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Notes Payable |
200,000 |
|
720,000 |
|
300,000 |
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Accruals |
136,000 |
|
284,960 |
|
380,000 |
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Total Current Liabilities |
$ 481,600 |
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$ 1,328,960 |
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$ 1,039,800 |
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Long-Term Debt |
323,432 |
|
1,000,000 |
|
500,000 |
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Common Stock (100,000 Shares) |
460,000 |
|
460,000 |
|
1,680,936 |
|
|
203,768 |
|
97,632 |
|
296,216 |
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Total Equity |
$ 663,768 |
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$ 557,632 |
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$ 1,977,152 |
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Total Liabilities And Equity |
$ 1,468,800 |
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$ 2,886,592 |
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$ 3,516,952 |
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Income Statements |
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2017 |
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2018 |
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2019(Projected) |
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Sales |
$ 3,432,000 |
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$ 5,834,400 |
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$ 7,035,600 |
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COGS except depr. |
2,864,000 |
|
4,980,000 |
|
5,800,000 |
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Depreciation |
18,900 |
|
116,960 |
|
120,000 |
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Other Expenses |
340,000 |
|
720,000 |
|
612,960 |
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Total Operating Costs |
$ 3,222,900 |
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$ 5,816,960 |
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$ 6,532,960 |
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EBIT |
$ 209,100 |
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$ 17,440 |
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$ 502,640 |
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Interest Expense |
62,500 |
|
176,000 |
|
80,000 |
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EBT |
$ 146,600 |
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$ (158,560) |
|
$ 422,640 |
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Taxes (40%) |
58,640 |
|
(63,424) |
|
169,056 |
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Net Income |
$ 87,960 |
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$ (95,136) |
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$ 253,584 |
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Other Data |
2017 |
|
2018 |
|
2019(Projected) |
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Stock Price |
$ 8.50 |
|
$ 6.00 |
|
$ 12.17 |
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Shares Outstanding |
100,000 |
|
100,000 |
|
250,000 |
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EPS (Earnings per share) |
$ 0.880 |
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$ (0.951) |
|
$ 1.014 |
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DPS (Dividend per share) |
$ 0.220 |
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$ 0.110 |
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$ 0.220 |
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Tax Rate |
40% |
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40% |
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40% |
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Book Value Per Share |
$ 6.638 |
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$ 5.576 |
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$ 7.909 |
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Ratio Analysis |
2017 |
|
2018 |
|
2019(Projected) |
Industry Average |
|
Current |
2.3 |
|
1.5 |
|
? |
2.7 |
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Quick |
0.8 |
|
0.5 |
|
? |
1.0 |
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Fixed Assets Turnover |
10.0 |
|
6.2 |
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? |
7.0 |
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Total Assets Turnover |
2.3 |
|
2.0 |
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? |
2.5 |
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Debt to Asset Ratio |
35.6% |
|
59.6% |
|
? |
32.0% |
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TIE |
3.3 |
|
0.1 |
|
? |
6.2 |
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Profit Margin |
2.6% |
|
-1.6% |
|
? |
3.6% |
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Basic Earning Power |
14.2% |
|
0.6% |
|
? |
17.8% |
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ROA |
6.0% |
|
-3.3% |
|
? |
9.0% |
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ROE |
13.3% |
|
-17.1% |
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? |
17.9% |
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Price/Earnings (P/E) |
9.7 |
|
-6.3 |
|
? |
16.2 |
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Market/Book |
1.3 |
|
1.1 |
|
? |
2.9 |
- Why are ratios useful?
- Calculate the 2019 current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company’s liquidity position in 2017, 2018, and as projected for 2019?
- We often think of ratios as being useful (1) to managers to help run the business, (2) to bankers for credit analysis, and (3) to stockholders for stock valuation. Would these different types of analysts have an equal interest in the
liquidity ratios ? - Calculate the 2019 fixed assets turnover, and total assets turnover. How does the firm’s utilization of assets stack up against other firms in its industry?
- Calculate the 2019 debt to asset ratio and times-interest-earned. How does the firm compare with the industry with respect to financial leverage? What can you conclude from these ratios?
- Calculate the 2019 profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios?
- Calculate the 2019 price/earnings ratio and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company?
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