Performance Evaluation

Ace Company Data

1

Ace Company Data The company’s financial data is condensed from the financial statements of Ace Company. Both the Income Statement and Balance Sheet tables are for 2016 and 2017, ending December 31.

• Inventory at December 31, 2015, was $4,800,000. Accounts receivable at December 31, 2015 was $3,800,000.

• The market price of the common stock was $104 per share at December 31, 2017, and $81 per share at December 31, 2016.

• There were no changes in the number of shares of common stock during 2017, 2016, or 2015.

• There are no shares of preferred stock. There are no stock options, convertible debt, or other possible sources of common stock.

• Cash dividends of $1,000,000 ($2.00 per share) were paid in both 2017 and in 2016.

• All sales are made on credit.

Note: All dollar amounts in tables are in thousands of dollars.

Ace Company Balance Sheet Assets 2017 2016 Cash $2,547 $1,800 Accounts receivable 4,000 3,900 Inventories (FIFO) 6,000 5,000 Property, plant and equipment, net of

accumulated depreciation 10,000 9,800

Other long-term assets 1,000 1,000 TOTAL ASSETS $23,547 $21,500

Liabilities and Equity 2017 2016 Current liabilities $7,000 $7,000 Long-term liabilities 9,800 10,000 Common stock, no par, 500,000 shares

issued and outstanding 2,000 2,000

Retained earnings 4,747 2,500 TOTAL LIABILITIES AND EQUITY $23,547 $21,500

2

Ace Company Income Statement

2017 2016 Net sales $20,000 $18,000 Cost of goods sold 10,000 9,500 Gross profit 10,000 9,500 - Operating expense 4,000 3,700 = Operating income 6,000 4,800 Interest expense 588 600 Income before income tax 5,412 4,200 Income taxes 2,165 1,680

Net income $3,247 $2,520

Ace Company Financial Ratios

2017 2016 Current ratio 12,547/7,000 = 1.79 10,700/7,000 = 1.53 Total debt to equity 16,800/6,747 = 2.49 times 17,000/4,500 = 3.78 times Gross profit rate (gross margin %) 10,000/20,000 = 50% 8,500/18,000 = 47.2% Net Profit Rate (Net margin %) 3,247/20,000 = 16.2% 2,520/18,000 = 14% EPS (Earnings per share) 3,247,000/500,000 = $6.49 2,520,000/500,000 = $5.04 PE ratio (Price/Earnings) 104/$6.49 = 16.02 $81/$5.04 = 16.07 Dividend yield % 2/$104 = 1.9% $2/$81 = 2.5% Dividend payout $1,000,000/3,247,000 = 30.8% $1,000,000/$2,520,000 = 39.7% Times interest earned $6,000/$588 = 10.2 times $4,800/$600 = 8 times Inventory turnover 10,000/((6,000 + 5,000)/2) =

1.82 times $9,500/(($5,000 + $4,800)/2) = 1.94 times

Accounts receivable turnover 20,000/((4000 + 3,900)/2) = 5.06 times

$18,000/(($3,900 + $3,800)/2) = 4.68 times