Problem 9-22A (Algo) Ratio analysis LO 9-3, 9-4, 9-5 Fanning Company's income statement information follows: Net sales Income before interest and taxes Net income after taxes Interest expense Stockholders' equity, December 31 (Year 1: $198,000) Common stock, December 31 Required Compute the following ratios for Fanning for Year 3 and Year 2. a. Times interest earned b. Earnings per share c. Price-earnings ratio d. Return on average equity e. Net margin The average number of shares outstanding was 7,800 for Year 3 and 6,900 for Year 2. Year 3 Year 2 Year 3 $420,000 $257,000 114,000 55,720 8,900 times a. Number of times interest was earned. (Round your answers to 2 decimal places.) b. Earnings per share based on the average number of shares outstanding. (Round your answers to 2 decimal places.) c. Price-earnings ratio (market prices: Year 3, $65 per share; Year 2, $76 per share). (Round your intermediate and final answers to 2 decimal places.) d. Return on average equity. (Round your percentage answers to 2 decir places. (i.e., 0.2345 should be entered as 23.45).) e. Net margin. (Round your percentage answers to 2 decimal places. (i.e., 0.2345 should be entered as 23.45).) times % % 312,000 195,000 Year 2 83,000 62,900 7,900 times 242,000 172,500 times % %
Problem 9-22A (Algo) Ratio analysis LO 9-3, 9-4, 9-5 Fanning Company's income statement information follows: Net sales Income before interest and taxes Net income after taxes Interest expense Stockholders' equity, December 31 (Year 1: $198,000) Common stock, December 31 Required Compute the following ratios for Fanning for Year 3 and Year 2. a. Times interest earned b. Earnings per share c. Price-earnings ratio d. Return on average equity e. Net margin The average number of shares outstanding was 7,800 for Year 3 and 6,900 for Year 2. Year 3 Year 2 Year 3 $420,000 $257,000 114,000 55,720 8,900 times a. Number of times interest was earned. (Round your answers to 2 decimal places.) b. Earnings per share based on the average number of shares outstanding. (Round your answers to 2 decimal places.) c. Price-earnings ratio (market prices: Year 3, $65 per share; Year 2, $76 per share). (Round your intermediate and final answers to 2 decimal places.) d. Return on average equity. (Round your percentage answers to 2 decir places. (i.e., 0.2345 should be entered as 23.45).) e. Net margin. (Round your percentage answers to 2 decimal places. (i.e., 0.2345 should be entered as 23.45).) times % % 312,000 195,000 Year 2 83,000 62,900 7,900 times 242,000 172,500 times % %
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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**Problem 9-22A (Algo) Ratio Analysis LO 9-3, 9-4, 9-5**
Fanning Company’s income statement information follows:
| | Year 3 | Year 2 |
|------------------------------|-----------:|---------:|
| Net sales | $420,000 | $257,000 |
| Income before interest and taxes | 114,000 | 83,000 |
| Net income after taxes | 76,800 | 62,900 |
| Interest expense | 7,900 | 7,900 |
| Stockholders’ equity, December 31 (Year 1: $198,000) | 312,000 | 242,000 |
| Common stock, December 31 | 195,000 | 172,500 |
The average number of shares outstanding was 7,800 for Year 3 and 6,900 for Year 2.
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**Required:**
Compute the following ratios for Fanning for Year 3 and Year 2:
**a. Number of times interest was earned.** *(Round your answers to 2 decimal places.)
**b. Earnings per share based on the average number of shares outstanding.** *(Round your answers to 2 decimal places.)
**c. Price-earnings ratio (market prices: Year 3, $65 per share; Year 2, $70 per share.)** *(Round your intermediate and final answers to 2 decimal places.)
**d. Return on average equity.** *(Round your percentage answers to 2 decimal places. (i.e., 0.2345 should be entered as 23.45.))
**e. Net margin.** *(Round your percentage answers to 2 decimal places. (i.e., 0.2345 should be entered as 23.45.))
---
**Table for Answers:**
| | Year 3 | Year 2 |
|------------------|----------:|----------:|
| a. Times interest earned | | |
| b. Earnings per share | | |
| c. Price-earnings ratio | | |
| d. Return on average equity | | |
| e. Net margin | | |
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This problem involves computing various financial
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