Chapter 12, Problem 34AP

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

Comparative financial statement data of Lodgepole Furniture Company follow:

Lodgepole Furniture Company Income Statement Years Ended December 31, 2018 and 2017
			2018	2017
		Net Sales	$494,000	$464,000
		Cost of Goods Sold	242,000	233,000
		Grass Profit	252,000	231,000
		Operating Expenses	135,000	140,000
		Income from Operations	117,000	91,000
		Interest Expense	8,000	18,000
		Income Before Income Tax	109,000	73,000
		Income Tax Expense	28,000	24,000
		Net Income	$81,000	$49,000

Lodgepole Furniture Company Balance Sheet December 31, 2018 and 2017 (Selected 2016 amounts given for computation of ratios)
			2018	2017	2016
		Current Assets:
		Cash	$98,000	$102,000
		Accounts Receivable, Net	103,000	95,000	$106,000
		Inventory	167,000	158,000	189,000
		Prepaid Expenses	32,000	18,000
		Total Current Assets	400,000	373,000
		Property, Plant, and Equipment, Net	197,000	178,000
		Total Assets	$597,000	$551,000
		Total Current Liabilities	$212,000	$232,000
		Long-Term Liabilities	124,000	114,000
		Total Liabilities	336,000	346,000
		Common Stockholders’ Equity, No Par	261,000	205,000	197,000
		Total Liabilities and Stockholders’ Equity	$597,000	$551,000

Other information follows:

a. Market price of a share of common stock was $50.00 at December 31, 2018. and $33.00 at December 31, 2017.

b. An average of 11,000 common shares were outstanding during 2018 and 8,000 during 2017.

Requirements

1. Compute the following ratios for 2018 and 2017. Round to two decimal places. Assume all sales are on credit.

1. a. Current ratio
2. b. Inventory turnover
3. c. Accounts receivable turnover
4. d. Interest coverage ratio
5. e. Return on equity
6. f. Earnings per share of common stock
7. g. Price-earnings ratio

2. Decide (a) whether Lodgepole 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.

How will what you learned in this problem help you evaluate an investment?