Tiger de and pald year. Comparative ina statements, prepared at December 31, reported the following summarized information: Current Previous Income Statement Sales Revenue $342,000 $281,000 175,650 166, 350 63,600 6,400 96,350 28,905 Cost of Goods Sold 159,000 122,000 52,930 5,670 63,400 19,020 Gross Profit Operating Expenses Interest Expense Income before Income Tax Expense Income Tax Expense (30%)

Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter16: Financial Statement Analysis
Section: Chapter Questions
Problem 4PB
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2
Tiger Audio declared and paid a cash dividend of $7,925 in the current year. Its comparative financial
statements, prepared at December 31, reported the following summarized information:
Current
Previous
Income Statement
$342,000 $281,000
175,650
166,350
63,600
6,400
96,350
28,905
Sales Revenue
Cost of Goods Sold
159,000
122,000
52,930
5,670
63,400
19,020
Gross Profit
Operating Expenses
Interest Expense
Income before Income Tax Expense
Income Tax Expense (30%)
Net Income
$ 67,445
$ 44,380
Balance Sheet
$ 72,520
32,900
49,000
151,000
$305,420
$ 45, 200
28,000
46,000
138, 200
Cash
Accounts Receivable, Net
Inventory
Property and Equipment, Net
Total Assets
$257,400
$ 39,000
4,800
101,900
145,700
39,400
120,320
$ 37,000
4,000
116, 200
157, 200
39,400
60,800
Accounts Payable
Income Tax Payable
Note Payable (long-term)
Total Liabilities
Common Stock (par $1)
Retained Earnings
Total Liabilities and Stockholders' Equity $305,420 $257,400
Transcribed Image Text:2 Tiger Audio declared and paid a cash dividend of $7,925 in the current year. Its comparative financial statements, prepared at December 31, reported the following summarized information: Current Previous Income Statement $342,000 $281,000 175,650 166,350 63,600 6,400 96,350 28,905 Sales Revenue Cost of Goods Sold 159,000 122,000 52,930 5,670 63,400 19,020 Gross Profit Operating Expenses Interest Expense Income before Income Tax Expense Income Tax Expense (30%) Net Income $ 67,445 $ 44,380 Balance Sheet $ 72,520 32,900 49,000 151,000 $305,420 $ 45, 200 28,000 46,000 138, 200 Cash Accounts Receivable, Net Inventory Property and Equipment, Net Total Assets $257,400 $ 39,000 4,800 101,900 145,700 39,400 120,320 $ 37,000 4,000 116, 200 157, 200 39,400 60,800 Accounts Payable Income Tax Payable Note Payable (long-term) Total Liabilities Common Stock (par $1) Retained Earnings Total Liabilities and Stockholders' Equity $305,420 $257,400
Required:
1. Compute the gross profit percentage in the current and previous years. Are the current year results
better, or worse, than those for the previous year?
2. Compute the net profit margin for the current and previous years. Are the current year results better, or
worse, than those for the previous year?
3. Compute the earnings per share for the current and previous years. Are the current year results better, or
worse, than those for the previous year?
4. Stockholders' equity totaled $89,000 at the beginning of the previous year. Compute the return on equity
ratios for the current and previous years. Are the current year results better, or worse, than those for the
previous year?
5. Net property and equipment totaled $139,000 at the beginning of the previous year. Compute the fixed
asset turnover ratios for the current and previous years. Are the current year results better, or worse, than
those for the previous year?
6. Compute the debt-to-assets ratios for the current and previous years. Is debt providing financing for a
larger or smaller proportion of the company's asset growth?
7. Compute the times interest earned ratios for the current and previous years. Are the current year results
better, or worse, than those for the previous year?
8. After Tiger released its current year financial statements, the company's stock was trading at $34. After
the release of its previous year financial statements, the company's stock price was $18 per share.
Compute the P/E ratios for both years. Does it appear that investors have become more (or less)
optimistic about Tiger's future success?
Transcribed Image Text:Required: 1. Compute the gross profit percentage in the current and previous years. Are the current year results better, or worse, than those for the previous year? 2. Compute the net profit margin for the current and previous years. Are the current year results better, or worse, than those for the previous year? 3. Compute the earnings per share for the current and previous years. Are the current year results better, or worse, than those for the previous year? 4. Stockholders' equity totaled $89,000 at the beginning of the previous year. Compute the return on equity ratios for the current and previous years. Are the current year results better, or worse, than those for the previous year? 5. Net property and equipment totaled $139,000 at the beginning of the previous year. Compute the fixed asset turnover ratios for the current and previous years. Are the current year results better, or worse, than those for the previous year? 6. Compute the debt-to-assets ratios for the current and previous years. Is debt providing financing for a larger or smaller proportion of the company's asset growth? 7. Compute the times interest earned ratios for the current and previous years. Are the current year results better, or worse, than those for the previous year? 8. After Tiger released its current year financial statements, the company's stock was trading at $34. After the release of its previous year financial statements, the company's stock price was $18 per share. Compute the P/E ratios for both years. Does it appear that investors have become more (or less) optimistic about Tiger's future success?
Expert Solution
Step 1

Followings are the Formula, which we will use to calculate the Ratios :

  • Gross Profit = Gross Profit / Sales *100
  • Net Profit = Net Profit / Sales *100
  • Earnings Per Share = Net Income /No. of shares outstanding
  • Fixed Assets Turnover Ratio = Net Sales/ Fixed Assets
  • Debt to Assets Ratio = Debts/Assets Ratio
  • Time Interest Earned Ratio = EBITDA/Interest Expenses 
  • P/E Ratio = Market Price Per Share/Earning Per Share
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