Computing Comparative Financial Statements and DuPont Ratios (AP13-6)
Use the data given in P13-5 for Prince Company.
Required:
- 1. Compute component percentages for Year 2.
- 2. Compute the ratios in the DuPont model for Year 2.
1)
Compute the Component percentage for the year 2.
Explanation of Solution
Component percentage analysis:
Component percentage analysis is prepared to analyse the relationship among various items of the financial statements with a particular base amount. This analysis is also called as common-size statement.
Compute the component percentage for the Year 2.
Corporation P | ||
Income Statement | ||
For the year ended Year 2 | ||
Particulars | Year 2 | |
Amount | Percent | |
( $) | (%) | |
Sales revenues | 190,000 | 100 |
Cost of goods sold | 112,000 | 58.95 |
Gross profit on sales | 78,000 | 41.05 |
Operating expenses | 56,000 | 29.47 |
Pre-tax income | 22,000 | 11.58 |
Income tax expense | 8,000 | 4.21 |
Net income | 14,000 | 7.37 |
Table (1)
Corporation P | ||
Balance Sheet | ||
As on date of Year 2 end | ||
Particulars | 2013 | |
Amount ( $) |
Percent (%) | |
Cash | 4,000 | 3.88 |
Accounts receivable | 14,000 | 13.59 |
Inventory | 40,000 | 38.83 |
Property and equipment | 45,000 | 43.69 |
Total assets | 103,000 | 100.00 |
Current liabilities | 16,000 | 15.53 |
Long-term liabilities | 45,000 | 43.69 |
Common stock ($5 par value) | 30,000 | 29.13 |
Retained earnings | 12,000 | 11.65 |
Total liabilities and owners’ equity | 103,000 | 100.00 |
Table (2)
In the income statement, base amount is sales revenue. In the balance sheet, base amount is total assets.
2)
Compute the ratios in the DuPont model for Year 2.
Explanation of Solution
DuPont model:
It is a model which allows the analyst to analyse a company’s performance using ratios. This model uses the ratios which indicates the company performance. DuPont model equiation is as follows:
Calculate the ratios in the DuPont model for Year 2.
Ratio | Formula | Calculation | Result | ||
1 | Return on Equity (ROE) | 36.36% | |||
2 | Return on Assets (ROA) | 14.00% | |||
3 | Total asset turnover | 1.90 | |||
4 | Net profit margin | 7.37% | |||
5 | Financial leverage | 2.60 |
Table (3)
Working notes:
Calculate the average total stockholders’ equity
Average common stock for the year 2
Average retained earnings for theYear 2:
Average total stockholders’ equity for the Year 2:
Want to see more full solutions like this?
Chapter 13 Solutions
CONNECT FINANCIAL ACCOUNTING >I<
- The comparative financial statements of Global Technology are as follows: Review the worksheet RATIOA that follows these requirements. You have been asked to perform a ratio analysis of this company for 2012.arrow_forwardData for Lozano Chip Company and its industry averages follow. Calculate the indicated ratios for Lozano. Construct the extended DuPont equation for both Lozano and the industry. Outline Lozano’s strengths and weaknesses as revealed by your analysis.arrow_forwardData for Lozano Chip Company and its industry averages follow. Calculate the indicated ratios for Lozano. Construct the extended DuPont equation for both Lozano and the industry. Outline Lozano’s strengths and weaknesses as revealed by your analysis. Lozano Chip Company: Balance Sheet as of December 31, 2019 (Thousands of Dollars) Lozano Chip Company: Income Statement for Year Ended December 31, 2019 (Thousands of Dollars)arrow_forward
- Cuneo Companys income statements for the last 3 years are as follows: Refer to the information for Cuneo Company above. Required: 1. Prepare a common-size income statement for Year 2 by expressing each line item for Year 2 as a percentage of that same line item from Year 1. (Note: Round percentages to the nearest tenth of a percent.) 2. Prepare a common-size income statement for Year 3 by expressing each line item for Year 3 as a percentage of that same line item from Year 1. (Note: Round percentages to the nearest tenth of a percent.)arrow_forwardThe condensed financial statements of Ivanhoe Company for the years 2020-2021 are presented below: (See Images) Compute the following financial ratios by placing the proper amounts for numerators and denominators. (Round per unit answers to 2 decimal places, e.g. 52.75.) (a) Current ratio at 12/31/21 $ $ (b) Acid test ratio at 12/31/21 $ $ (c) Accounts receivable turnover in 2021 $ $ (d) Inventory turnover in 2021 $ $ (e) Profit margin on sales in 2021 $ $ (f) Earnings per share in 2021 $ (g) Return on common stockholders’ equity in 2021 $ $ (h) Price earnings ratio at 12/31/21 $ $ (i) Debt to assets at 12/31/21 $ $ (j) Book value per share at 12/31/21 $arrow_forwarda) Compute the above indicated ratios for DEL Bhd. b) Evaluate the overall performance of the company as compared to the industry average ratios.arrow_forward
- Combining the information provided by various ratios can enhance your understanding of the financial condition of a business. Comparative financial statements for Na Pali Coast Company for the years ending December 31, 20-1 and 20-2 are provided. Na Pali Coast CompanyComparative Income StatementFor Years Ended December 31, 20-2 and 20-1 20-2 20-1 Net sales $466,451 $291,613 Cost of goods sold 285,889 188,626 Gross profit $180,562 $102,987 Operating expenses 125,650 78,200 Operating income $54,912 $24,787 Other expenses 1,200 500 Income before income taxes $53,712 $24,287 Income tax expense 18,250 7,285 Net income $ 35,462 $17,002 Na Pali Coast CompanyComparative Balance SheetDecember 31, 20-2 and 20-1 20-2 20-1 Assets Current assets: Cash $8,600 $7,500 Government notes 3,000 2,000 Accounts receivable (net) 10,500 8,600 Merchandise inventory 53,600 33,200 Supplies and prepayments 4,500 3,200…arrow_forwardcompute the dupont framework ratios for company A for year three only. the income statement and balance sheet for company A follows. Compute A) return on equity, B) return on sales Compute A) return on equity, B) return on sales, Asset turnover, D) Asset-to-equity ratio.arrow_forwardUsing the following selected items from the comparative balance sheet of Oriole Products.Determine the horizontal analysis. (Round percentages to 2 decimal places, e.g. 12.21%. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) ORIOLEPRODUCTSComparative Balance SheetDecember 31 2014 2013 Horizontal analysis Amount Percentage Amount Percentage Current assets $110,880 enter percentages % $128,216 enter percentages % Long-term assets 174,240 enter percentages % 117,304 enter percentages % Total assets 3,168,000 enter percentages % 2,728,000 enter percentages % Determine the vertical analysis. (Round percentages to 1 decimal place, e.g. 12.2%.) ORIOLEPRODUCTSComparative Balance SheetDecember 31 2014 2013 Vertical analysis Amount Percentage Amount Percentage Current assets $110,880…arrow_forward
- From the following financial statements, compute the required ratios (for year 2002 and 2003) and analyse them with respect to the industry averages. FINANCIAL STATEMENTS INCOME STATEMENT FOR YEAR ENDING DECEMBER 31 2003 2002 2001 Sales 6,500,000.00 5,550,000.00 4,050,000.00 Cost of Goods Sold 3,965,000.00 3,385,500.00 2,430,000.00 Gross Profit 2,535,000.00 2,164,500.00 1,620,000.00 Depreciation 485,600.00 287,200.00 158,500.00 Other Operating expenses 1,690,000.00 1,387,500.00 1,012,500.00 EBIT 359,400.00 489,800.00 449,000.00 Interest 331,956.00 160,125.00 50,645.00 EBT 27,444.00 329,675.00 398,355.00 Income Taxes 10,978.00 131,870.00 159,342.00 Net Income 16,466.00 197,805.00…arrow_forwardRefer to the information for Cuneo Company above.Required:1. Prepare a common-size income statement for Year 2 by expressing each line item for Year2 as a percentage of that same line item from Year 1. (Note: Round percentages to thenearest tenth of a percent.)2. Prepare a common-size income statement for Year 3 by expressing each line item for Year3 as a percentage of that same line item from Year 1. (Note: Round percentages to thenearest tenth of a percent.)arrow_forwardPreparing Common-Size Income Statements by Using BasePeriod Horizontal AnalysisRefer to the information for Scherer Company on the previous page.Required:Prepare common-size income statements by using Year 1 as the base period. (Note: Roundanswers to the nearest whole percentage.)arrow_forward
- Excel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningSurvey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub