PART I

Using the financial statements for The Stair Company from Problem 23.1A, calculate the following financial ratios for 2018 and 2019. Comment on any ratio that merits additional consideration.

1. Current ratio

2. Acid-test ratio

3. Inventory turnover

4. Return on sales

5. Earnings per share of common stock

6. Book value per share of common stock

7. Return on total assets

8. Ratio of stockholders’ equity to total equities

9. Rate of return on stockholders’ equity

10. Asset turnover

Assume all sales are credit sales.

PART II

Selected ratios for other common-size companies in the same industry as The Stair Company follow. Using these data and the ratios you computed in Part I, write brief comments on areas you feel are strengths or weaknesses, or require further observation for The Stair Company.

1. Rate of return on stockholders’ equity, 45.0 percent

2. Stockholders’ equity to total equities, 0.6 to 1 (or 60 percent)

3. Asset turnover, 2.5 to 1

4. Merchandise inventory turnover, 4.5 times

Analyze: The Stair Company experienced a 17.7 percent increase in net income after taxes from 2018 to 2019. What return on sales can be anticipated if net sales and net income after taxes increase by 5 percent in 2020?

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The Stalr Company Comparative Income Statement For Years Ended December 31, 2019 and 2018 Amounts 2019 2018 Revenue Sales 905000 15000 890000 76 5 ololo glololal Less Sales Returns and Allowances Net Sales 756000 Cost of Goods Sold Merchandise Inventory, January 1 84000 8lolololo Net Purchases 26 2 00o 342 00O 3 0600O 390000 Total Merchandise Available for Sale Less Merchandise Inventory, December 31 86 ololol 814 01010 258 ololol Cost of Goods Sold 304000 586000 Gross Profit on Sales 498000 Operating Expenses Selling Expenses Sales Salaries Expenses Payroll Tax Expense-Selling Other Seling Expenses Total Selling Expenses 87000 8700 25200 120900 8olololol 18 01010 15 20l0 103200 General and Administrative Expenses Officers' Salaries Expense Payroll Tax Expense-Administrative Depreciation Expense Other General and Administrative Expenses Total General and Administrative Expenses 130000 13000 8250 9 450 160700 110lololO 11000 8 250 7lololo 136250 Total Operating Expenses 28 1600 Net Income before Income Taxes 304400 91320 213080 25855|0 Income Tax Expелse Net Income after Income Taxes 717151615 18 ol9|8|5 The Stalr Company Comparative Balance Sheet December 31, 2019 and 2018 Amounts 2019 2018 Assets Current Assets Cash 111022 |9|5|0101이 86000 9500 1200 302722 4 6 275 Accounts Receivable 87 5010 Merchandise Inventory 84 0olo Prepaid Expenses Supplies 5000 500 223275 Total Current Assets Property. Plant, and Equipment Land 기5|01010 82500 75 0010 Building and Equipment Less Accumulated Depreciation Net Book Value-Building and Equipment Total Property, Plant, and Equipment 8 2 5olo 3 3 olololl 24750 495lolol 57 75l0 124500 427222 132750 356025 Total Assets Liabilities and Stockholders' Equity Current Liabilities Accounts Payable Sales Tax Payable 2기000 1000 1142 1001이 30142 57 ololo 3 ololo Payroll Taxes Payable Income Taxes Payable 1025 10 Total Current Liabilities 66025 Long-Term Liabilities Mortgage Payable Total Long-Term Liabilities 39000 39000 69 14 2 45 이이 Aslololo Total Liabilities 1110215 Stockholders' Equity Common Stock ($1 par, 10,000 shares authorized; 10,000 shares issued and outstanding) Paid-in Capital-Common Stock Retained Earnings 11000이 10000 338080 3 58lol8lol 100|00 10000 225000 245000 Total Stockholders' Equity Total Liabilities and Stockholders' Equity 4 272212 3 56 025