Ratios from Comparative and Common$-$Size Data

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$)58,00046,000$

Inventory $123,000108,000$

Prepaid expenses $20,00014,000$

Plant and other assets $($net$)471,000411,000$

Total Assets $$693,000$ $$594,000$

Liabilities and Stockholders' Equity

Current liabilities $$93,000$ $$85,000$

$10\%$ Bonds payable $228,000163,000$

$9\%$ Preferred stock, $$50$ Par Value $78,00078,000$

Common stock, $$10$ Par Value $200,000200,000$

Retained earnings $94,00068,000$

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 $544,200436,920$

Gross profit on sales $278,800244,080$

Selling and administrative expenses $171,400149,200$

Income before interest expense and income taxes $107,40094,880$

Interest expense $25,50019,000$

Income before income taxes $81,90075,880$

Income tax expense $22,90021,300$

Net income $$59,000$ $$54,580$

Other financial data $($thousands of dollars$)$

Cash provided by operating activities $$65,200$ $$60,500$

Preferred stock dividends $6,7506,750$

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.