Consider the following financial statements for Waverly Company. During the current year, management obtained additional bond financing
Question:
Consider the following financial statements for Waverly Company. During the current year, management obtained additional bond financing to enlarge its production facilities. The company faced higher production costs during the year for such things as fuel, materials, and freight. Because of temporary government price controls, a planned price increase on products was delayed several months.
As a holder of both common and preferred stock, you decide to analyze the financial statements:
WAVERLY COMPANY Balance Sheets (Thousands of Dollars) | ||
---|---|---|
Dec. 31, Current Year | Dec. 31, Prior Year | |
Assets | ||
Cash and cash equivalents | $21,000 | $15,000 |
Accounts receivable (net) | 58,000 | 46,000 |
Inventory | 123,000 | 108,000 |
Prepaid expenses | 20,000 | 14,000 |
Plant and other assets (net) | 471,000 | 411,000 |
Total Assets | $693,000 | $594,000 |
Liabilities and Stockholders' Equity | ||
Current liabilities | $93,000 | $85,000 |
10% Bonds payable | 228,000 | 163,000 |
9% Preferred stock, $50 Par Value | 78,000 | 78,000 |
Common stock, $10 Par Value | 200,000 | 200,000 |
Retained earnings | 94,000 | 68,000 |
Total Liabilities and Stockholders' Equity | $693,000 | $594,000 |
WAVERLY COMPANY Income Statements (Thousands of Dollars) | ||
---|---|---|
Current Year | Prior Year | |
Sales revenue | $823,000 | $681,000 |
Cost of goods sold | 544,200 | 436,920 |
Gross profit on sales | 278,800 | 244,080 |
Selling and administrative expenses | 171,400 | 149,200 |
Income before interest expense and income taxes | 107,400 | 94,880 |
Interest expense | 25,500 | 19,000 |
Income before income taxes | 81,900 | 75,880 |
Income tax expense | 22,900 | 21,300 |
Net income | $59,000 | $54,580 |
Other financial data (thousands of dollars) | ||
Cash provided by operating activities | $65,200 | $60,500 |
Preferred stock dividends | 6,750 | 6,750 |
Required
a. Calculate the following for each year:
current ratio, quick ratio, operating-cash-flow-to-current liabilities ratio (current liabilities were $78,000,000 at January 1 of the prior year), inventory turnover (inventory was $87,000,000 at January 1 of the prior year), debt-to-equity ratio, times-interest-earned ratio, return on assets (total assets were $493,000,000 at January 1 of the prior year), and return on common stockholders' equity (common stockholders' equity was $236,000,000 at January 1 of the prior year).
b. Calculate common-size percentages for each year's income statement.
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw