EXERCISE 1: Financial Ratios for Common Stockholders

Comparative financial statements for Heritage Antiquing Services for the fiscal year ending December 31 appear on the following page. The company did not issue any new common or preferred stock during the year. A total of 800 thousand shares of common stock were outstanding. The interest rate on the bond payable was 14%, the income tax rate was 40%, and the dividend per share of common stock was $0.75. The market value of the company's common stock at the end of the year was $26. All of the company's sales are on account.

ASSETS

this year last year

cash $1,080 $1,210

A/R $9,000 $6,500

the rest ca be found online

questions

Part I. Compute the following financial ratios for common stockholders for this year:

(25 points)

1.Gross margin ratio.

2.Earnings per share of common stock.

3.Price-earnings ratio.

4.Return on total assets.

5.Return on common stockholders' equity.

.

Part II. Compute the following financial ratios for short-term creditors for this year:

(36 points)

6.Working capital.

7.Current ratio.

8.Quick ratio or Acid-test ratio.

9.Accounts receivable turnover.

10.Average collection period.

11.Inventory turnover.

12.Average sale period.

13.Cash Conversion Cycle. (8 points)

Part III. Compute the following financial ratios for long-term creditors for this year:

(15 points)

14.Times interest earned ratio.

15.Total liabilities to equity ratio

16.Debt-to-equity ratio

Part IV. Use the traditional DuPont analysis to decompose the return on common stockholder's equity (ROE) into its three components, and comment on Heritage Antiquing Services' performance. (16 points)