The last two years of financial statements for Blunt Industries are as follows:
Blunt Industries
Balance Sheets, December 31, 2015 and 2016

Blunt Industries
Income Statements for the Years Ended December 31, 2015 and 2016

a. Calculate the following financial ratios for 2015 and 2016:

b. Evaluate the firm's financial position at the end of 2015 in terms of its liquidity, capital structure, asset management efficiency, and profitability.
c. At the end of 2016, the firm has 5,000 shares of common stock outstanding, selling for $15 each. What were the firm's (i) earnings per share, (ii) price-earnings ratio, and (iii) market-to-book ratio?
d. What observations can you make about the financial condition and performance of the firm from your answers to parts a through c?

Transcribed Image Text:

2015 $ 11,250 15,625 36,250 63,125 25,000 87,500 2016 $ 650 20,800 59,150 $ 80,600 S 33,800 130,000 S (49.400) 114,400 $195,000 Accounts receivable Inventory Total current assets Buildings and equipment Less: Accumulated de preciation Total fixed assets $ (35,000) 77,500 $140,625 Total assets S 28,600 61,100 $ 89,700 29,835 $119,535 40,950 34,515 s 75,465 $195,000 Accounts payable Short-term bank notes $13,125 21,250 34,375 35,938 $70,313 39,375 30,938 70,313 $140,625 Total current liabilities Long-term debt Total liabilities Common stock Retained earnings Total common stockholders' equity Total debt and stockholders' equity 2016 Sales (all credit) $187,500 (112,500) $ 75,000 $ 400,000 Cost of goods sold Gross profit $ 160,000 Operating expenses Fixed cash operating expenses Variable operating expenses $(31,500) (18,750) $ (52,500) (40,000) nse Total operating expenses Earnings before interest and taxes (57,000) $ 18,000 (5.719) $12,281 (6.141 $6,141 $ (117500) $ 42,500 9,094) S 33,407 (16.703 $16.703 Earnings before taxes Net income Industry Averages 2015 2016 Current ratio Acid-test ratio Average collection period Inventory turnover Debt ratio Times interest earned Operating profit margin Total asset turnover Fixed asset turnover Operating return on assets Return on equity 0.80 37 days 58.00% 3.80 10.00% 1.40 11 .40% 9.50% 2