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Notes: a. The firm has an 8-year financial lease requiring annual beginning-of-year payments of $50,000. Five years of the lease have yet to run. b. Annual credit purchases of $6,200,000 were made during the year. c. The annual principal payment on the long-term debt is $100,000. d. On December 31, 2012, the firm’s common stock closed at $39.50 per share.   Question:  a. Using vertical analysis, what is the gross profit ratio? b. Using vertical analysis, what is the operating profit ratio?

Notes: a. The firm has an 8-year financial lease requiring annual beginning-of-year payments of $50,000. Five years of the lease have yet to run. b. Annual credit purchases of $6,200,000 were made during the year. c. The annual principal payment on the long-term debt is $100,000. d. On December 31, 2012, the firm’s common stock closed at $39.50 per share.   Question:  a. Using vertical analysis, what is the gross profit ratio? b. Using vertical analysis, what is the operating profit ratio?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Notes: a. The firm has an 8-year financial lease requiring annual beginning-of-year payments of $50,000. Five years of the lease have yet to run. b. Annual credit purchases of $6,200,000 were made during the year. c. The annual principal payment on the long-term debt is $100,000. d. On December 31, 2012, the firm’s common stock closed at $39.50 per share.

 

Question: 

a. Using vertical analysis, what is the gross profit ratio?

b. Using vertical analysis, what is the operating profit ratio?

Case 1 Given the following financial statements historical ratios, and industry averages, calculate Sterling Company's financial ratios for the most recent year. (Assume a 365-day year.) Sterling Company Income Statement for the Year Ended December 31, 2012 Sales revenue 24 10,000,000 Less: Cost of Goods Sold 7.500.000 Gross Profits 2,500,000 Less: Operating expenses Selling expense General and administrative expent 300,000 650,000 Lease expense 50,000 Depreciation expense 200,000 Total operating expense 1.200.000 Operating profits 1,300,000 Less: Interest expense 200,000 1. 100,000 Net profit before taxes Less Taxes (rate = 40%) 440,000 660,000 Net profit after taxes Less: Preferred stock dividends 50,000 Earnings available for common stockholders 610,000 Earnings per share Sterling Company Balance Sheet as of December 31, 2012 Assets Liabilities & Stockholders" Equtiy Accounts pauable Notes payable Cash 200,000 900,000 Marketable Securities 50,000 200,000 Accounts receivable 800,000 Accruals 100,000 Inventories 950,000 Total current liabilities 1.200,000 Total current assets 2,000,000 Long-term debt (include financial leases) 3.000,000 Gross fixed assets (at cost) 12,000,000 Total liabilities 4.200,000 Less: Accumulated depreciation Preferred stock. (25.000 shares, $2 dividend) Common stiock (200,000 shares at $3 par) 3,000,000 1,000,000 Net fixed assets 9.000,000 600,000 Other assets 1,000,000 Paid-in capital in excess of par value-common Retained earnings 5,200,000 Total assets 12.000,000 1,000,000 Total stockhal ders' equity 7.800.000 Total liabilities & stockhol ders" equity 12,000,000
Transcribed Image Text:Case 1 Given the following financial statements historical ratios, and industry averages, calculate Sterling Company's financial ratios for the most recent year. (Assume a 365-day year.) Sterling Company Income Statement for the Year Ended December 31, 2012 Sales revenue 24 10,000,000 Less: Cost of Goods Sold 7.500.000 Gross Profits 2,500,000 Less: Operating expenses Selling expense General and administrative expent 300,000 650,000 Lease expense 50,000 Depreciation expense 200,000 Total operating expense 1.200.000 Operating profits 1,300,000 Less: Interest expense 200,000 1. 100,000 Net profit before taxes Less Taxes (rate = 40%) 440,000 660,000 Net profit after taxes Less: Preferred stock dividends 50,000 Earnings available for common stockholders 610,000 Earnings per share Sterling Company Balance Sheet as of December 31, 2012 Assets Liabilities & Stockholders" Equtiy Accounts pauable Notes payable Cash 200,000 900,000 Marketable Securities 50,000 200,000 Accounts receivable 800,000 Accruals 100,000 Inventories 950,000 Total current liabilities 1.200,000 Total current assets 2,000,000 Long-term debt (include financial leases) 3.000,000 Gross fixed assets (at cost) 12,000,000 Total liabilities 4.200,000 Less: Accumulated depreciation Preferred stock. (25.000 shares, $2 dividend) Common stiock (200,000 shares at $3 par) 3,000,000 1,000,000 Net fixed assets 9.000,000 600,000 Other assets 1,000,000 Paid-in capital in excess of par value-common Retained earnings 5,200,000 Total assets 12.000,000 1,000,000 Total stockhal ders' equity 7.800.000 Total liabilities & stockhol ders" equity 12,000,000
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