Condensed balance sheet and income statement data for Landwehr Corporation appear below:

Additional information:

1. The market price of Landwehr?s common shares was $4.00, $5.00, and $8.00 for 2019, 2020, and 2021, respectively.

2. All dividends were paid in cash.

3. Weighted-average common shares were 32,000 in 2021 and 31,000 in 2020.

Instructions

a. Calculate the following ratios for 2020 and 2021.

1. Profit margin 5. Payout ratio

2. Asset turnover 6. Debt to total assets

3. Earnings per share 7. Gross profit margin

4. Price-earnings ratio

b. Based on the ratios calculated, discuss briefly the improvement or lack thereof in Landwehr Corporation?s financial position and operating results from 2020 to 2021.

Taking It Further

Roberto Landwehr is puzzled. He believes the profit margin of Landwehr is an indication the company is doing well. Julie Beck, his accountant, says that more information is needed to determine the firm?s financial well-being. Who is correct? Why?

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LANDWEHR CORPORATION Balance Sheet December 31 2021 2020 2019 $ 25,000 $ 20,000 $ 18,000 Cash Accounts receivable 50,000 45,000 48,000 Other current assets 95,000 90,000 64,000 440,000 Property, plant, and equipment (net) 475,000 403,000 $640,000 $600,000 $533,000 $ 75,000 $ 80,000 $ 70,000 Current liabilities Long-term debt Common shares 80,000 85,000 50,000 340,000 310,000 300,000 113,000 Retained earnings 145,000 $640,000 125,000 $600,000 $533,000 LANDWEHR CORPORATION Income Statement For the Year Ended December 31 2020 2021 Sales revenue $740,000 $700,000 Less: Sales returns and allowances 40,000 50,000 Net sales 700,000 650,000 Cost of goods sold 420,000 400,000 Gross profit Operating expenses (including income taxes) 280,000 250,000 235,000 220,000 $ 45,000 $ 30,000 Profit