Chapter 17, Problem P17.27APGA

Using ratios to evaluate a stock investment
Learning Objective 4
1. 2018: e. 48.9%
Comparative financial statement data of Sanfield, Inc. follow:

		SANFIELD, INC.
		Comparative Income Statement
		Year Ended December 31, 2018 and 2017
			2018	2017
Net Sales Revenue		$462,000	$430,000
Cost of Goods Sold		236,000	213,000
Gross Profit		226,000	217,000
Operating Expenses		135,000	133,000
Income From Operations	91,000	84,000
Interest Expenses		8,000	12,000
Income Before Income Tax	83,000	72,000
Income Tax Expense	18,000	22,000
Net Income		$65,000	$50,000

			SANFIELD, INC.
			Comparitive Income Statement
			Year Ended December 31, 2018 and 2017
				2018	2017	2016*
	Assets
Current Assets:
Cash				$99,000	$97,000
Accounts Receivable, Net		109,000	117,000	$100,000
Merchandise Inventory		142,000	164,000	$207,000
Prepaid Expenses			15,000	5,000
Total Current Assets		365,000	383,000
Property, Plant, and, Equipment, Net	215,000	177,000
Total Assets			$580,000	$560,000	$599,000
	Liabilities
Total Current Liabilities		$222,000	$244,000
Long-Term Liabilities		113,000	92,000
Total Liabilities			335,000	336,000
	Stockholders' Equity
Preferred Stock, 4%			92,000	92,000
Common Stockholders' Equity, no par	153,000	132,000	85,000
Total Liabilities and Stockholders' Equity	$580,000	$560,000

1. Market price of Sanfield’s common stock: $51.48 at December 31, 2016, and $37.08 at December 31,2017.
2. Common shares outstanding: 16,000 on December 31, 2018 and 15,000 on December 31, 2017 and 2016.
3. All sales are on credit.

Requirements

1. Compute the following ratios for 2018 and 2017:

1. Current ratio
2. Cash ratio
3. Times-interest-earned ratio
4. Inventory turnover
5. Gross profit percentage
6. Debt to equity ratio
7. Rate of return on common stockholders' equity
8. Earnings per share of common stock
9. Price/earnings ratio

2. Decide (a) whether Sanfield’s ability to pay debts and to sell inventory improved or deteriorated during 2018 and (b) whether the investment attractiveness of its common stock appears to have increased or decreased.