Share price year-end Income tax rate Dividends declared and paid Shares Outstanding Profitability ratios: Ratio Gross profit percentage Profit margin Earnings per share Asset turnover ratios Fixed Asset turnover Receivables turnover Inventory turnover Liquidity ratios: Current ratio The companies are in the same line of business and are direct competitors in a large metropolitan area. Both have been in business approximately ten years, and each has had steady growth. The management of each has a different viewpoint in many respects. Blair Company is more conservative, and as its president said, "We avoid what we consider to be undue risk." Neither company is publicly held. Armstrong Company has an annual audit by an independent auditor, but Blair Company does not. Market tests: > Required: 1. Complete a schedule that reflects a ratio analysis of each company. Use ending balances if average balances are not available. (Round intermediate calculations and final answers to 2 decimal places.) HINT: To calculate Current Ratio, you will need to first calculate the total Current Assets. Armstrong Company Blair Company $ Price/earnings ratio Dividend yield ratio 18. 30% 46,000 15,000 11.00 % % per share times times times % > 15 30% $250,000 50,000 12.00 % per share times times times ►
Share price year-end Income tax rate Dividends declared and paid Shares Outstanding Profitability ratios: Ratio Gross profit percentage Profit margin Earnings per share Asset turnover ratios Fixed Asset turnover Receivables turnover Inventory turnover Liquidity ratios: Current ratio The companies are in the same line of business and are direct competitors in a large metropolitan area. Both have been in business approximately ten years, and each has had steady growth. The management of each has a different viewpoint in many respects. Blair Company is more conservative, and as its president said, "We avoid what we consider to be undue risk." Neither company is publicly held. Armstrong Company has an annual audit by an independent auditor, but Blair Company does not. Market tests: > Required: 1. Complete a schedule that reflects a ratio analysis of each company. Use ending balances if average balances are not available. (Round intermediate calculations and final answers to 2 decimal places.) HINT: To calculate Current Ratio, you will need to first calculate the total Current Assets. Armstrong Company Blair Company $ Price/earnings ratio Dividend yield ratio 18. 30% 46,000 15,000 11.00 % % per share times times times % > 15 30% $250,000 50,000 12.00 % per share times times times ►
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
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Transcribed Image Text:The financial statements for Armstrong and Blair companies for the current year are summarized below:
Blair
Company
Statement of Financial Position
Cash
Accounts receivable (net)
Inventory
Property, plant, and equipment (net)
Other non-current assets
Total assets
Current liabilities.
Long-term debt (10%)
Share capital
Contributed surplus
Retained earnings
Total liabilities and shareholders' equity
Statement of Earnings
Sales revenue (1/3 on credit)
Cost of sales
Expenses (including interest and income tax)
Net earnings
Accounts receivable (net)
Inventory
Long-term debt
Other data:
Share price year-end
Income tax rate
Dividends declared and paid
Shares Outstanding
$
Selected data from the financial statements for the previous year follows:
Blair
Company
Armstrong
Company
30,000
82,000
94,000
$ 50,000
28,000
86,000
$
$
18
30%
46,000
15,000
Armstrong
Company
$ 36,000 $ 32,000
30,000
40,000
205,000
35,000
170,000
95,000
$ 536,000
$ 125,000
94,000
180,000
40,000
97,000
$ 536,000
$ 550,000
(302,500)
(187,000)
$ 60,500
$
15
30%
$250,000
50,000
500,000
328,000
$ 935,000
$ 44,000
86,000
600,000
130,000
75,000
$935,000
$ 910,000
(455,000)
(345,800)
$ 109,200
The companies are in the same line of business and are direct competitors in a large metropolitan area. Both have been in business
approximately ten years, and each has had steady growth. The management of each has a different viewpoint in many respects. Blair
Company is more conservative, and as its president said, "We avoid what we consider to be undue risk." Neither company is publicly
Transcribed Image Text:Share price year-end
Income tax rate
Dividends declared and paid.
Shares Outstanding
Profitability ratios:
Ratio
Gross profit percentage
Profit margin
Earnings per share
Asset turnover ratios
The companies are in the same line of business and are direct competitors in a large metropolitan area. Both have been in business
approximately ten years, and each has had steady growth. The management of each has a different viewpoint in many respects. Blair
Company is more conservative, and as its president said, "We avoid what we consider to be undue risk." Neither company is publicly
held. Armstrong Company has an annual audit by an independent auditor, but Blair Company does not.
Fixed Asset turnover
Receivables turnover
Inventory turnover
Liquidity ratios:
Current ratio
Required:
1. Complete a schedule that reflects a ratio analysis of each company. Use ending balances if average balances are not available.
(Round intermediate calculations and final answers to 2 decimal places.)
HINT: To calculate Current Ratio, you will need to first calculate the total Current Assets.
Armstrong Company
Blair Company
Market tests:
$
Price/earnings ratio
Dividend yield ratio
18
30%
46,000
15,000
11.00 %
%
per share
times
times
times
%
$
15
30%
$250,000
50,000
12.00 %
%
per share
times
times
times
%
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