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Case 1 Given the following financial statements historical ratios, and industry averages, calculate Sterling Company's financial ratios for the most recent year. (Assume a 365-day year.) Sterling Company Income Statement for the Year Ended December 31, 2012 $ 10,000,000 7,500,000 Sales revenue Less: Cost of Goods Sold Gross Profits 2,500,000 Less: Operating expenses Selling expense General and administrative expens 300,000 650,000 Lease expense 50,000 Depreciation expense Total operating expense 200,000 1,200,000 Operating profits 1,300,000 Less: Interest expense 200,000 Net profit before taxes 1100,000 Less Taxes (rate - 40%) 440.000 Net profit after taxes Less: Preferred stock dividends 660,000 50,000 Earnings available for common stockholders 610,000 Earnings per share Sterling Company Balance Sheet as of December 31, 2012 Assets Liabilities & Stockholders' Equtiy Cash 200,000 Accounts payable Notes payable 900,000 Marketable Securities 50,000 200,000 Accounts receivable 800,000 Accruals 100,000 Inventories 950,000 Total current liabilities 1.200,000 Total current assets 2.000.000 Long-term debt (include financial leases) Total liabilities 3,000,000 12,000,000 Gross fixed assets (at cost) Less: Accumulated depreciation 4,200,000 3,000,000 Preferred stock (25,000 shares, $2 dividend) 1,000,000 Net fixed assets 9.000.000 Common stiock (200,000 shares at $3 par) 600,000 Paid-in capital in excess of par value-common Retained earrings Other assets 1,000,000 5,200,000 Total assets 12,000,000 1,000,000 Total stockholders' equity Total liabilities & stockholders' equity 7,800,000 12,000,000

Case 1 Given the following financial statements historical ratios, and industry averages, calculate Sterling Company's financial ratios for the most recent year. (Assume a 365-day year.) Sterling Company Income Statement for the Year Ended December 31, 2012 $ 10,000,000 7,500,000 Sales revenue Less: Cost of Goods Sold Gross Profits 2,500,000 Less: Operating expenses Selling expense General and administrative expens 300,000 650,000 Lease expense 50,000 Depreciation expense Total operating expense 200,000 1,200,000 Operating profits 1,300,000 Less: Interest expense 200,000 Net profit before taxes 1100,000 Less Taxes (rate - 40%) 440.000 Net profit after taxes Less: Preferred stock dividends 660,000 50,000 Earnings available for common stockholders 610,000 Earnings per share Sterling Company Balance Sheet as of December 31, 2012 Assets Liabilities & Stockholders' Equtiy Cash 200,000 Accounts payable Notes payable 900,000 Marketable Securities 50,000 200,000 Accounts receivable 800,000 Accruals 100,000 Inventories 950,000 Total current liabilities 1.200,000 Total current assets 2.000.000 Long-term debt (include financial leases) Total liabilities 3,000,000 12,000,000 Gross fixed assets (at cost) Less: Accumulated depreciation 4,200,000 3,000,000 Preferred stock (25,000 shares, $2 dividend) 1,000,000 Net fixed assets 9.000.000 Common stiock (200,000 shares at $3 par) 600,000 Paid-in capital in excess of par value-common Retained earrings Other assets 1,000,000 5,200,000 Total assets 12,000,000 1,000,000 Total stockholders' equity Total liabilities & stockholders' equity 7,800,000 12,000,000

Corporate Financial Accounting
Corporate Financial Accounting
14th Edition
ISBN:9781305653535
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Carl Warren, James M. Reeve, Jonathan Duchac
Chapter14: Financial Statement Analysis
Section: Chapter Questions
Problem 14.1EX: Vertical analysis of income statement Revenue and expense data for Innovation Quarter Inc. for two...
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Notes:
a. The firm has an 8-year financial lease requiring annual beginning-of-year payments of $50,000. Five years of the lease have yet to run.
b. Annual credit purchases of $6,200,000 were made during the year.
c. The annual principal payment on the long-term debt is $100,000.
d. On December 31, 2012, the firm’s common stock closed at $39.50 per share.

Question:

1. What is the return on total assets?

2. What is the return on total equity?

Case 1 Given the following financial statements historical ratios, and industry averages, calculate Sterling Company's financial ratios for the most recent year. (Assume a 365-day year.) Sterling Company Income Statement for the Year Ended December 31, 2012 $ 10,000,000 7,500,000 Sales revenue Less: Cost of Goods Sold Gross Profits 2,500,000 Less: Operating expenses Selling expense General and administrative expens 300,000 650,000 Lease expense 50,000 Depreciation expense Total operating expense 200,000 1,200,000 Operating profits 1,300,000 200,000 Less: Interest expense Net profit before taxes 1,100,000 Less Taxes (rate - 40%) 440,000 Net profit after taxes Less: Preferred stock dividends 660,000 50,000 Earnings available for common stockholders 24 610,000 Earnings per share Sterling Company Balance Sheet as of December 31, 2012 Assets Liabilities & Stockholders' Equtiy Cash 200,000 Accounts payable Notes payable 900,000 Marketable Securities 50,000 200,000 Accounts receivable 800,000 Accruals 100,000 Inventories 950,000 Total current liabilities 1,200,000 Total current assets 2.000,000 Long-term debt (include financial leases) Total liabilities 3,000,000 Gross fixed assets (at cost) 12,000,000 4,200,000 Less: Accumulated depreciation 3,000,000 Preferred stock (25,000 shares, $2 dividend) 1,000,000 Net fixed assets 9,000,000 Common stiock (200,000 shares at $3 par) Paid-in capital in excess of par value-common 600,000 Other assets 1,000,000 5,200,000 Total assets 12,000,000 Retained earrings Total stockholders' equity Total liabilities & stockholders' equity 1,000,000 7,800,000 12,000,000
Transcribed Image Text:Case 1 Given the following financial statements historical ratios, and industry averages, calculate Sterling Company's financial ratios for the most recent year. (Assume a 365-day year.) Sterling Company Income Statement for the Year Ended December 31, 2012 $ 10,000,000 7,500,000 Sales revenue Less: Cost of Goods Sold Gross Profits 2,500,000 Less: Operating expenses Selling expense General and administrative expens 300,000 650,000 Lease expense 50,000 Depreciation expense Total operating expense 200,000 1,200,000 Operating profits 1,300,000 200,000 Less: Interest expense Net profit before taxes 1,100,000 Less Taxes (rate - 40%) 440,000 Net profit after taxes Less: Preferred stock dividends 660,000 50,000 Earnings available for common stockholders 24 610,000 Earnings per share Sterling Company Balance Sheet as of December 31, 2012 Assets Liabilities & Stockholders' Equtiy Cash 200,000 Accounts payable Notes payable 900,000 Marketable Securities 50,000 200,000 Accounts receivable 800,000 Accruals 100,000 Inventories 950,000 Total current liabilities 1,200,000 Total current assets 2.000,000 Long-term debt (include financial leases) Total liabilities 3,000,000 Gross fixed assets (at cost) 12,000,000 4,200,000 Less: Accumulated depreciation 3,000,000 Preferred stock (25,000 shares, $2 dividend) 1,000,000 Net fixed assets 9,000,000 Common stiock (200,000 shares at $3 par) Paid-in capital in excess of par value-common 600,000 Other assets 1,000,000 5,200,000 Total assets 12,000,000 Retained earrings Total stockholders' equity Total liabilities & stockholders' equity 1,000,000 7,800,000 12,000,000
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