Chapter 12, Problem 40BP

Calculating various ratios for analysis (Learning Objectives 2 & 3) 20-25 min.

Comparative financial statement data of Shabby Chic Furniture Company follow:

Shabby Chic Furniture Company Income Statement Years Ended December 31, 2913 and 2017
			2018	2017
		Net Sales Cost of Goods Sold Gross Profit Operating Expenses Income from Operations Interest Expense Income Before income tax Income Tax Expense Net income	$453,000 231,000	$490,000 240,000
			222,000 133,000	250,000 132,000
			89,000 16,000	118,000 10,000
			73,000 24,000	108,000 30,000
			$49,000	$78,000

			Shabby Chic Furniture Company Balance Sheet December 31, 2018 and 2017 (Selected 2016 amounts given for computation of ratios)
				2018	2017			2016
		Current Assets: Cash Accounts Receivable, Net Inventory Prepaid Expenses Total Current Assets Property, Plant, and Equipment, Net Total Assets Total Current Liabilities Long-Term Liabilities Total Liabilities Common Stockholders’ Equity, No Par Total Liabilities and Stockholders’ Equity		$98,000 51,000 216,000 22,000	$97,000 45,000 230,000 30,000			$42,000 206,000 280,000
				387,000 176,000	402,000 198,000
				$563,000		$600,000
				$203,000	$210,000 121,000
				113, 000	331,000 269,000
				343,000 220,000 $563,000	$600,000

Other information follows:

1. a. Market price of a share of common stock was $31.00 at December 31, 2018, and $48.50 at December 31, 2017.
2. b. Average common shares outstanding were 11,000 during 2018 and 12,000 during 2017.

Requirements

1. 1. Compute the following ratios for 2018 and 2017. Round to two decimal places. Assume all sales are on credit.
2. a. Current ratio
3. b. Inventory turnover
4. c. Accounts receivable turnover
5. d. Interest coverage ratio
6. e. Return on equity
7. f. Earnings per share of common stock
8. g. Price-earnings ratio
9. 2. Decide (a) whether Shabby Chic Furniture Company’s performance improved or deteriorated during 2018 and (b) whether the attractiveness of its common stock as an investment seems to have increased or decreased.
10. 3. how will what you learned n this problem help you evaluate an investment?