Some recent financial statements for Smolira Golf, Inc., follow. SMOLIRA GOLF, INC. Balance Sheets as of December 31, 2018 and 2019 2018 2019 2018 2019 Assets Liabilities and Owners’ Equity Current assets Current liabilities Cash $ 5,298 $ 5,827 Accounts payable $ 3,754 $ 3,986 Accounts receivable 7,707 8,477 Notes payable 3,045 3,318 Inventory 12,150 21,956 Other 152 179 Total $ 25,155 $ 36,260 Total $ 6,951 $ 7,483 Long-term debt $ 24,700 $ 16,000 Owners’ equity Common stock and paid-in surplus $ 40,000 $ 37,000 Fixed assets Accumulated retained earnings 28,805 55,189 Net plant and equipment $ 75,301 $ 79,412 Total $ 68,805 $ 92,189 Total assets $ 100,456 $ 115,672 Total liabilities and owners’ equity $ 100,456 $ 115,672 SMOLIRA GOLF, INC. 2019 Income Statement Sales $ 229,854 Cost of goods sold 184,317 Depreciation 8,730 EBIT $ 36,807 Interest paid 1,811 Taxable income $ 34,996 Taxes 7,349 Net income $ 27,647 Dividends $ 16,000 Retained earnings 11,647 Smolira Golf has 10,000 shares of common stock outstanding, and the market price for a share of stock at the end of 2019 was $73. a. What is the price-earnings ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the price-sales ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What are the dividends per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d. What is the market-to-book ratio at the end of 2019? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
| Some recent financial statements for Smolira Golf, Inc., follow. |
| SMOLIRA GOLF, INC. Balance Sheets as of December 31, 2018 and 2019 |
||||||||||
| 2018 | 2019 | 2018 | 2019 | |||||||
| Assets | Liabilities and Owners’ Equity | |||||||||
| Current assets | Current liabilities | |||||||||
| Cash | $ | 5,298 | $ | 5,827 | Accounts payable | $ | 3,754 | $ | 3,986 | |
| Accounts receivable | 7,707 | 8,477 | Notes payable | 3,045 | 3,318 | |||||
| Inventory | 12,150 | 21,956 | Other | 152 | 179 | |||||
| Total | $ | 25,155 | $ | 36,260 | Total | $ | 6,951 | $ | 7,483 | |
| Long-term debt | $ | 24,700 | $ | 16,000 | ||||||
| Owners’ equity | ||||||||||
| Common stock | ||||||||||
| and paid-in surplus | $ | 40,000 | $ | 37,000 | ||||||
| Fixed assets | |
28,805 | 55,189 | |||||||
| Net plant and equipment | $ | 75,301 | $ | 79,412 | Total | $ | 68,805 | $ | 92,189 | |
| Total assets | $ | 100,456 | $ | 115,672 | Total liabilities and owners’ equity | $ | 100,456 | $ | 115,672 | |
| SMOLIRA GOLF, INC. 2019 Income Statement |
||||
| Sales | $ | 229,854 | ||
| Cost of goods sold | 184,317 | |||
| |
8,730 | |||
| EBIT | $ | 36,807 | ||
| Interest paid | 1,811 | |||
| Taxable income | $ | 34,996 | ||
| Taxes | 7,349 | |||
| Net income | $ | 27,647 | ||
| Dividends | $ | 16,000 | ||
| Retained earnings | 11,647 | |||
|
Smolira Golf has 10,000 shares of common stock outstanding, and the market price for a share of stock at the end of 2019 was $73. |
| a. | What is the price-earnings ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| b. | What is the price-sales ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| c. | What are the dividends per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| d. | What is the market-to-book ratio at the end of 2019? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
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