This pack includes ACC 206 week 2 P 15-26 DanfieldInc.
Using ratios to evaluate a stock investment
Comparative financial statement data of Danfield Inc. follow:
DANFIELD INC.
Comparative Income Statement
Years Ended December 31 2012 and 2011
2012 2011
Net sales $ 467000 $ 428000
Cost of goods sold 237000 218000
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Gross profit $ 230000 $ 210000
Operating expenses 136000 134000
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Income from operations $ 94000 $ 76000
Interest expense 9000 10000
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Income before income tax $ 85000 $ 66000
Income tax expense 24000 27000
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Net income $ 61000 $ 39000
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DANFIELD INC.
Comparative Balance Sheet
December 31 2012 and 2011
2012 2011 2010
Current assets:
Cash $ 97000 $ 95000
Current receivables net 112000 118000 $ 102000
Inventories 145000 163000 203000
Prepaid expenses 12000 5000
————- ———–
Total current assets $ 366000 $ 381000
Property plant and equipment net 211000 179000
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Total assets $ 577000 $ 560000 598000
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Total current liabilities $ 225000 $ 246000
Long-term liabilities 114000 97000
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Total liabilities $ 339000 $ 343000
Preferred stock 3% 108000 108000
Common stockholders’ equity no par 130000 109000 85000
————– ———–
Total liabilities and stockholders’ equity $ 577000 $ 560000
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*Selected 2010 amounts
Market price of Danfield’s common stock: $86.58 at December 31 2012 and
$46.54 at December 31 2011.
Common shares outstanding: 12000 during 2012 and 10000 during 2011 and
2010.
3. All sales on credit.
Requirements:
1. Compute the following ratios for 2012 and 2011:
a. Current ratio
b. Times-interest-earned ratio
c. Inventory turnover
d. Gross profit percentage
e. Debt to equity ratio
f. Rate of return on common stockholders’ equity
g. Earnings per share of common stock
h. Price/earnings ratio
Decide (a) whether of Danfield’s ability to pay debts and to sell inventory improved or deteriorated during 2012 and (b) whether the investment attractiveness of its common stock appears to have increased or decreased.
