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P 9- 10 Smith and Jones, Inc. is primarily engaged in the worldwide production, processing, distribution, and marketing of food products. The following information is from its 2011 annual report: 2011 2010 Earnings per share $ 1.08 $ 1.14 Cash dividends per common share $ 0.80 $ 0.76 Market price per common share $ 12.94 $ 15.19 Common shares outstanding 25,380,000 25,316,000 Total assets $1,264,086,000$1,173,924,000 Total liabilities $ 823,758,000 $ 742,499,000 Nonredeemable preferred stock $ 16,600,000 $ 16,600,000 Preferred dividends $ 4,567,000 $ 930,000 Net income $ 32,094,000 $ 31,049,000 Required o o o o o a. Based on these data, compute the following for 2011 and 2010: 1. Percentage of earnings retained 2. Price/earnings ratio 3. Dividend payout 4. Dividend yield 5. Book value per share b. Discuss your findings from the viewpoint of a potential investor. P 10-3 BBB Company's balance sheet and income statement follow: BBB COMPANY Income Statement For Year Ended December 31, 2011 Sales $38,000 Operating expenses: Depreciation expense $ 2,800 Other operating expenses 35,000 37,800 Operating income 200 Gain on sale of land 800 Income before tax expense 1,000 Tax expense 500 Net income $ 500 Supplemental information: Dividends declared and paid $ 4,350 Land sold for cash 1,800 BBB COMPANY Income Statement For Year Ended December 31, 2011 Equipment purchased for cash Common stock sold for cash 3,500 3,800 Required a. Prepare a statement of cash flows for the year ended December 31, 2011. (Present the cash flows from operations using the indirect method.) b. Comment on the statement of cash flows. P 10-8 The balance sheet for December 31, 2011, income statement for the year ended December 31, 2011, and the statement of cash flows for the year ended December 31, 2011, of Bernett Company are shown in the following balance sheet. The president of Bernett Company cannot understand why Bernett is having trouble paying current obligations. He notes that business has been very good, as sales have more than doubled, and the company achieved a profit of $69,000 in 2011. BERNETT COMPANY Balance Sheet December 31, 2011 and 2010 2011 2010 Cash $ 5,000 $ 28,000 Accounts receivable, net 92,000 70,000 Inventory 130,000 85,000 Prepaid expenses 4,000 6,000 Land 30,000 10,000 Building $170,000 $ 30,000 Accumulated depreciation (20,000) (10,000) Total assets $411,000 $219,000 Assets Liabilities and Stockholders' Equity Accounts payable $ 49,000 $ 44,000 BERNETT COMPANY Balance Sheet December 31, 2011 and 2010 2011 2010 Cash $ 5,000 $ 28,000 Income taxes payable 5,000 4,000 Accrued liabilities 6,000 5,000 Bonds payable (current $10,000 at 12/31/11) 175,000 20,000 Common stock 106,000 96,000 Retained earnings 70,000 Total liabilities and stockholders' equity $411,000 $219,000 Assets BERNETT COMPANY Income Statement For Year Ended December 31, 2011 50,000 BERNETT COMPANY Balance Sheet December 31, 2011 and 2010 2011 2010 $ 5,000 $ 28,000 Assets Cash Sales $500,000 Less expenses: Cost of goods sold (includes depreciation of $4,000) 310,000 Selling and administrative expenses (includes depreciation of $6,000)80,000 Interest expense 11,000 Total expenses 401,000 Income before taxes 99,000 Income tax expense 30,000 Net income $ 69,000 BERNETT COMPANY Statement of Cash Flows For Year Ended December 31, 2011 Net cash flow from operating activities: Net income $ 69,000 Noncash expenses, revenues, losses, and gains included in income: Depreciation 10,000 Increase in receivables (22,000) Increase in inventory (45,000) Decrease in prepaid expenses 2,000 Increase in accounts payable 5,000 Increase in income taxes payable 1,000 Increase in accrued liabilities 1,000 Net cash flow from operating activities Cash flows from investing activities: $ 21,000 BERNETT COMPANY Statement of Cash Flows For Year Ended December 31, 2011 Increase in land $ (20,000) Increase in buildings (140,000) Net cash used by investing activities (160,000) Cash flows from financing activities: Bond payable increase $ 155,000 Common stock increase 10,000 Cash dividends paid (49,000) Net cash provided by financing activities 116,000 Net decrease in cash $ (23,000) Required o o a. Comment on the statement of cash flows. b. Compute the following liquidity ratios for 2011: 1. Current ratio 2. Acid-test ratio 3. Operating cash flow/current maturities of long-term debt and current notes payable o 4. Cash ratio c. Compute the following debt ratios for 2011: o 1. Times interest earned o 2. Debt ratio o 3. Operating cash flow/total debt d. Compute the following profitability ratios for 2011: o 1. Return on assets (using average assets) o 2. Return on common equity (using average common equity) e. Compute the following investor ratio for 2011: Operating cash flow/cash dividends. f. Give your opinion as to the liquidity of Bernett. g. Give your opinion as to the debt position of Bernett. h. Give your opinion as to the profitability of Bernett. i. Give your opinion as to the investor ratio. j. Give your opinion of the alternatives Bernett has in order to ensure that it can pay bills as they come due. o