Financial Statement Analysis

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Accounting: Tools for Business Decision Making

Seventh Edition

Kimmel; Weygandt; Kieso

Chapter 13

Financial Analysis: The Big Picture

Prepared by

COBY HARMON

University of California, Santa Barbara

Westmont College

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Chapter Outline:

Learning Objectives

L O 1 Apply the concepts of sustainable income and quality of earnings.

L O 2 Apply horizontal analysis and vertical analysis.

L O 3 Analyze a company’s performance using ratio analysis.

Learning Objective 1 Apply the Concepts of Sustainable Income and Quality of Earnings

L O 1

Sustainable Income (1 of 3)

The most likely level of income to be obtained by a company in the future

Differs from actual net income by the amount of unusual revenues, expenses, gains, and losses included in the current year’s income

Income statements provide information on sustainable income by separating operating transactions from nonoperating transactions

L O 1

Sustainable Income (2 of 3)

Cruz Company

Statement of Comprehensive Income

For the Year Ended 2022

Sales revenue	$900,000
Cost of goods sold	650,000
Gross profit	250,000
Operating expenses	100,000
Income from operations	150,000
Other revenues (expenses) and gains (losses)	20,000
Income before income taxes	170,000
Income tax expense	24,000
Income from continuing operations	146,000
Discontinued operations (net of tax)	30,000
Net income	176,000
Other comprehensive income items (net of tax)	10,000
Comprehensive income	$186,000

L O 1

Sustainable Income (3 of 3)

A statement of comprehensive income includes

Net income and

Comprehensive income

Two major unusual items in this statement are

Discontinued operations and

Other comprehensive income

Example: Unrealized gains or losses on available-for-sale debt securities

Unusual items reported net of taxes

L O 1

Discontinued Operations (1 of 3)

Disposal of a significant component of a business

Report income (loss) from discontinued operations in two parts

Income (loss) from operations, net of tax, and

Gain (loss) on disposal, net of tax

L O 1

Discontinued Operations (2 of 3)

Illustration: During 2022 Acro Energy Inc. has income before income taxes of $800,000. During 2022, Acro discontinued and sold its unprofitable chemical division. The loss in 2022 from chemical operations (net of $60,000 taxes) was $140,000. The loss on disposal of the chemical division (net of $30,000 taxes) was $70,000. Assume a 30% tax rate on income.

Prepare a statement of comprehensive income for ACRO for the year ended December 31, 2022.

L O 1

Discontinued Operations (3 of 3)

Acro Energy Inc.

Statement of Comprehensive Income (partial)

For the Year Ended December 31, 2022

Income before income taxes		$800,000
Income tax expense		240,000
Income from continuing operations		560,000
Discontinued operations
Loss from operation of chemical division, net of $60,000 income tax savings	$140,000
Loss from disposal of chemical division, net of $30,000 income tax savings	70,000	210,000
Net income		$350,000

L O 1

Comprehensive Income (1 of 3)

Illustration: During 2022, Stassi Corporation purchased IBM bonds for $10,500 as an investment, which it intends to sell sometime in the future. At the end of 2022, Stassi was still holding the investment, but the bonds’ market price was now $8,000. Stassi is required to reduce the recorded value of its IBM investment by the unrealized loss of $2,500. Should Stassi include this $2,500 unrealized loss in net income? Assume a tax rate of 20%.

Trading securities: Unrealized gains and losses are reported in the “Other expenses and losses” section of the income statement.

Available-for-sale securities: Unrealized gains and losses are reported as “Other comprehensive income” in stockholders’ equity.

L O 1

Comprehensive Income (2 of 3)

Classified as available-for-sale

→ Stassi did not purchase the investment for trading purposes

Stassi Corporation

Comprehensive Income Statement

For the Year Ended December 31, 2022

Net income	$300,000
Other comprehensive income
Unrealized loss on available-for-sale securities, net of $500 tax savings	2,000
Comprehensive income	$298,000

L O 1

Comprehensive Income (3 of 3)

Stassi has common stock of $3,000,000, retained earnings of $300,000, and an accumulated other comprehensive loss of $2,000.

Stassi Corporation

Balance Sheet (partial)

Stockholders’ equity
Common stock	$3,000,000
Retained earnings	300,000
Total paid-in capital and retained earnings	3,300,000
Accumulated other comprehensive loss	(2,000)
Total stockholders’ equity	$3,298,000

L O 1

Complete Statement of Comprehensive Income

Pace Corporation

Statement of Comprehensive Income

For the Year Ended December 31, 2022

Net sales		$440,000
Cost of goods sold		260,000
Gross profit		180,000
Operating expenses		110,000
Income from operations		70,000
Other revenues and gains		5,600
Other expenses and losses		9,600
Income before income taxes		66,000
Income tax expense ($66,000 × 30%)		19,800
Income from continuing operations		46,200
Discontinued operations
Loss from operation of plastics division, net of income tax savings $18,000 ($60,000 × 30%)	$42,000
Gain on disposal of plastics division, net of $15,000 income taxes ($50,000 × 30%)	35,000	7,000
Net income		39,200
Other comprehensive income
Unrealized gain on available-for-sale securities, net of income taxes ($15,000 × 30%)		10,500
Comprehensive income		$ 49,700

L O 1

Changes in Accounting Principle

Occurs when the principle used in the current year is different from the one used in the preceding year

Example: Change in inventory costing methods such as FIFO to average-cost

Changes permitted when management can show that the new principle is preferable

Most changes in accounting principle reported retroactively

L O 1

Quality of Earnings

A high quality of earnings provides full and transparent information that will not confuse or mislead users

Reduction of quality of earnings

Caused by variations in alternative accounting methods used among companies which hampers comparability

Examples

F I F O versus L I F O inventory cost flow

Straight-line versus declining-balance depreciation

L O 1

Pro Forma Income

Companies whose stock is publicly-traded are required to present their income statement following G A A P

Companies often report pro forma income

Excludes items that the company thinks are unusual or non-recurring

Analysts and investors are often critical of using pro forma income because these numbers often make companies look better than they really are

L O 1

Improper Recognition

Improper recognition of revenue

Most common abuse of manipulating earnings numbers to meet expectations

Such as channel stuffing (Bristol-Myers Squibb)

Improper capitalization of operating expenses

WorldCom

Failure to report liabilities

Enron

L O 1

Do It! 1: Unusual Items (1 of 2)

In its proposed 2022 income statement, AIR Corporation reports income before income taxes $400,000, unrealized gain on available-for-sale securities $100,000, income taxes $120,000 (not including unusual items), loss from operation of discontinued flower division $50,000, and loss on disposal of discontinued flower division $90,000. The income tax rate is 30%.

Prepare a correct statement of comprehensive income, beginning with “Income before income taxes.”

L O 1

Do It! 1: Unusual Items (2 of 2)

AIR Corporation

Statement of Comprehensive Income (partial)

For the Year Ended December 31, 2022

Income before income taxes		$400,000
Income tax expense		120,000
Income from continuing operations		280,000
Discontinued operations
Loss from operation of flower division, net of $15,000 income tax savings	$35,000
Loss on disposal of flower division, net of $27,000 income tax savings	63,000	98,000
Net income		182,000
Other comprehensive income
Unrealized gain on available-for-sale securities, net of $30,000 income taxes		70,000
Comprehensive income		$252,000

L O 1

Learning Objective 2 Apply Horizontal Analysis and Vertical Analysis

L O 2

Assessing Financial Performance

Investors are interested in

Core or sustainable earnings of a company

Making comparisons from period to period

Three types of comparisons

Intracompany basis

Intercompany basis

Industry averages

L O 2

Tools of Financial Statement Analysis

Three basic tools in financial statement analysis:

Horizontal analysis

Vertical analysis

Ratio analysis

L O 2

Horizontal Analysis

Technique for evaluating a series of financial statement data over a period of time

Also called trend analysis

Purpose is to determine

Increase or decrease

Expressed as either an amount or a percentage

L O 2

Balance Sheet Horizontal Analysis (1 of 2)

Chicago Cereal Company

Condensed Balance Sheets

December 31 (in thousands)

Assets	2022	2021	Increase (Decrease) during 2022 Amount	Increase (Decrease) during 2022 Percent
Current assets	$ 2,717	$ 2,427	$ 290	11.9
Property assets (net)	2,990	2,816	174	6.2
Other assets	5,690	5,471	219	4.0
Total assets	$11,397	$10,714	$ 683	6.4
Liabilities and Stockholders’ Equity
Current liabilities	$ 4,044	$ 4,020	$ 24	0.6
Long-term liabilities	4,827	4,625	202	4.4
Total liabilities	8,871	8,645	226	2.6
Stockholders’ equity
Common stock	493	397	96	24.2
Retained earnings	3,390	2,584	806	31.2
Treasury stock (cost)	(1,357)	(912)	445	48.8
Total stockholders’ equity	2,526	2,069	457	22.1
Total liabilities and stockholders' equity	$11,397	$10,714	$ 683	6.4

L O 2

Balance Sheet Horizontal Analysis (2 of 2)

Changes in the assets section

Current assets increased $290,000, or 11.9% ($290 ÷ $2,427)

Property assets (net) increased $174,000, or 6.2%

Other assets increased $219,000, or 4.0%

Changes in the liabilities section

Current liabilities increased $24,000, or 0.6%

Long-term liabilities increased $202,000, or 4.4%

Changes in the stockholders’ equity section

Retained earnings increased $806,000, or 31.2%

L O 2

Income Statement Horizontal Analysis (1 of 2)

Chicago Cereal Company

Condensed Income Statements

For the Years Ended December 31 (in thousands)

	2022	2021	Increase (Decrease) during 2022 Amount.	Increase (Decrease) during 2022 Percent
Net sales	$11,776	$10,907	$869	8.0
Cost of goods sold	6,597	6,082	515	8.5
Gross profit	5,179	4,825	354	7.3
Selling and administrative expenses	3,311	3,059	252	8.2
Income from operations	1,868	1,766	102	5.8
Interest expense	321	294	27	9.2
Income before income taxes	1,547	1,472	75	5.1
Income tax expense	444	468	(24)	(5.1)
Net income	$ 1,103	$ 1,004	$ 99	9.9

L O 2

Income Statement Horizontal Analysis (2 of 2)

Net sales increased $869,000, or 8.0% ($869 ÷ $10,907)

Cost of goods sold increased $515,000, or 8.5%

Selling and administrative expenses increased $252,000, or 8.2%

Gross profit increased 7.3%

Net income increased 9.9%

Can be attributed to the increase in net sales and a decrease in income tax expense

L O 2

Vertical Analysis

A technique that expresses each financial statement item as a percentage of a base amount

Also called common-size analysis

On a balance sheet we might express current assets as 22% of total assets (total assets being the base amount)

On an income statement we might say that selling expenses are 16% of net sales (net sales being the base amount)

L O 2

Balance Sheet Vertical Analysis (1 of 2)

Chicago Cereal Company

Condensed Balance Sheets

December 31 (in thousands)

Assets	2022 Amount	2022 Percent*	2021 Amount	2021 Percent*
Current assets	$ 2,717	23.8	$ 2,427	22.6
Property assets (net)	2,990	26.2	2,816	26.3
Other assets	5,690	50.0	5,471	51.1
Total assets	$11,397	100.0	$10,714	100.0
Liabilities and Stockholders’ Equity
Current liabilities	$ 4,044	35.5	$ 4,020	37.5
Long-term liabilities	4,827	42.4	4,625	43.2
Total liabilities	8,871	77.9	8,645	80.7
Stockholders’ equity
Common stock	493	4.3	397	3.7
Retained earnings	3,390	29.7	2,584	24.1
Treasury stock (cost)	(1,357)	(11.9)	(912)	(8.5)
Total stockholders’ equity	2,526	22.1	2,069	19.3
Total liabilities and stockholders' equity	$11,397	100.0	$10,714	100.0

L O 2

Balance Sheet Vertical Analysis (2 of 2)

Analysis of the balance sheet shows the following changes

Current assets increased $290,000 from 2021 to 2022, and they increased from 22.6% to 23.8% of total assets

Property assets (net) decreased from 26.3% to 26.2% of total assets

Other assets decreased from 51.1% to 50.0% of total assets

Retained earnings increased from 24.1% to 29.7% of total liabilities and stockholders' equity

Total stockholders’ equity increased from 19.3% to 22.1% of total liabilities and stockholders’ equity

L O 2

Income Statement Vertical Analysis (1 of 4)

Chicago Cereal Company

Condensed Income Statements

For the Years Ended December 31 (in thousands)

	2022 Amount	2022 Percent*	2021 Amount	2021 Percent*
Net sales	$11,776	100.0	$10,907	100.0
Cost of goods sold	6,597	56.0	6,082	55.8
Gross profit	5,179	44.0	4,825	44.2
Selling and administrative expenses	3,311	28.1	3,059	28.0
Income from operations	1,868	15.9	1,766	16.2
Interest expense	321	2.7	294	2.7
Income before income taxes	1,547	13.2	1,472	13.5
Income tax expense	444	3.8	468	4.3
Net income	$ 1,103	9.4	$ 1,004	9.2
*Numbers have been rounded to total 100%.

L O 2

Income Statement Vertical Analysis (2 of 4)

Analysis of the income statements shows the following changes.

Cost of goods sold as a percentage of net sales increased from 55.8% to 56.0%

Selling and administrative expenses increased from 28.0% to 28.1%

Net income as a percentage of net sales increased from 9.2% to 9.4%

Increase in net income as a percentage of sales is due primarily to the decrease in income tax expense as a percentage of sales.

L O 2

Income Statement Vertical Analysis (3 of 4)

Condensed Income Statements

For the Years Ended December 31, 2022

	Chicago Cereal (in thousands) Amount	Chicago Cereal (in thousands) Percent*	Giant Mills, Inc. (in millions) Amount	Giant Mills, Inc. (in millions) Percent*
Net sales	$11,776	100.0	$17,910	100.0
Cost of goods sold	6,597	56.0	11,540	64.4
Gross profit	5,179	44.0	6,370	35.6
Selling and administrative expenses	3,311	28.1	3,474	19.4
Non-recurring charges and (gains)	0	—	(62)	(0.3)
Income from operations	1,868	15.9	2,958	16.5
Other expenses and revenues (including income taxes)	765	6.5	1,134	6.3
Net income	$ 1,103	9.4	$ 1,824	10.2
*Numbers have been rounded to total 100%.

L O 2

Income Statement Vertical Analysis (4 of 4)

Vertical analysis also enables you to compare companies of different sizes.

Chicago net sales are much less than those of Giant; vertical analysis eliminates the impact of this size difference

Chicago has a higher gross profit percentage 44.0%, compared to 35.6% for Giant

But, Chicago’s selling and administrative expenses are 28.1% of net sales, while those of Giant Mills are 19.4%

Chicago’s net income as a percentage of net sales is 9.4%, compared to 10.2% for Giant

L O 2

Do It! 2: Horizontal Analysis

Summary financial information for Rosepatch Company is as follows.

Blank	December 31, 2022	December 31, 2021
Current assets	$234,000	$180,000
Plain assets (net)	756,000	420,000
Total assets	$990,000	$600,000

Compute the amount and percentage changes in 2022 using horizontal analysis, assuming 2021 is the base year.

Increase in 2022

	Amount	Percent
Current assets	$ 54,000	30% [($234,000 − $180,000) ÷ $180,000]
Plant assets (net)	336,000	80% [($756,000 − $420,000) ÷ $420,000]
Total assets	$390,000	65% [($990,000 − $600,000) ÷ $600,000]

L O 2

Learning Objective 3 Analyze a Company’s Performance Using Ratio Analysis

L O 3

Ratio Analysis (1 of 2)

Ratio analysis expresses the relationship among selected items of financial statement data.

Financial Ratio Classifications

Liquidity

Measures short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash.

Profitability

Measures the income or operating success of a company for a given period of time.

Solvency

Measures the ability of the company to survive over a long period of time.

L O 3

Ratio Analysis (2 of 2)

A single ratio by itself is not very meaningful.

Types of comparisons

Intracompany comparisons for two years for Chicago Cereal

Industry average comparisons based on median ratios for the industry

Intercompany comparisons based on Giant Mills as Chicago Cereal’s principal competitor

L O 3

Liquidity Ratios

Working capital

Current ratio

Inventory turnover

Days in inventory

Accounts receivable turnover

Average collection period

L O 3

Solvency Ratios

Debt to assets ratio

Times interest earned

Free cash flow

L O 3

Profitability Ratios (1 of 2)

Earnings per share

Price-earnings ratio

Gross profit rate

Profit margin

Return on assets

L O 3

Profitability Ratios (2 of 2)

Asset turnover

Payout ratio

Return on common stockholders' equity

L O 3

Statements for Ratio Analysis (1 of 3)

Chicago Cereal Company

Condensed Income Statements

For the Years Ended December 31 (in thousands)

	2022	2021
Net sales	$11,776	$10,907
Cost of goods sold	6,597	6,082
Gross profit	5,179	4,825
Selling and administrative expenses	3,311	3,059
Income from operations	1,868	1,766
Interest expense	321	294
Income before income taxes	1,547	1,472
Income tax expense	444	468
Net income	$ 1,103	$ 1,004

L O 2

Statements for Ratio Analysis (2 of 3)

Chicago Cereal Company

Balance Sheets

December 31 (in thousands)

Assets	2022	2021
Current assets
Cash	$ 524	$ 411
Accounts receivable	1,026	945
Inventory	924	824
Prepaid expenses and other current assets	243	247
Total current assets	2,717	2,427
Property assets (net)	2,990	2,816
Intangibles and other assets	5,690	5,471
Total assets	$11,397	$10,714
Liabilities and Stockholders’ Equity
Current liabilities	$ 4,044	$ 4,020
Long-term liabilities	4,827	4,625
Stockholders’ equity—common	2,526	2,069
Total liabilities and stockholders' equity	$11,397	$10,714

L O 2

Statements for Ratio Analysis (3 of 3)

Chicago Cereal Company

Condensed Statements of Cash Flows

For the Years Ended December 31 (in thousands)

	2022	2021
Cash flows from operating activities
Cash receipts from operating activities	$11,695	$10,841
Cash payments for operating activities	10,192	9,431
Net cash provided by operating activities	1,503	1,410
Cash flows from investing activities
Purchases of property, plant, and equipment	(472)	(453)
Other investing activities	(129)	8
Net cash used in investing activities	(601)	(445)
Cash flows from financing activities
Issuance of common stock	163	218
Issuance of debt	2,179	721
Reductions of debt	(2,011)	(650)
Payment of dividends	(475)	(450)
Repurchase of common stock and other items	(645)	(612)
Net cash provided (used) by financing activities	(789)	(773)
Increase (decrease) in cash and cash equivalents	113	192
Cash and cash equivalents at beginning of year	411	219
Cash and cash equivalents at end of year	$ 524	$ 411

L O 2

Nature of Liquidity Ratios

Measure the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash

Interested in assessing liquidity

Short-term creditors such as bankers and suppliers

L O 3

Current Ratio

Chicago Cereal

.		2022	2021
	=	.67	.60

Giant Mills 2022	Industry Average
.67	1.06

Chicago has $0.67 of current assets for every dollar of current liabilities.

L O 3

Accounts Receivable Turnover

Chicago Cereal

.		2022	2021
	=	11.9	12.0

Giant Mills 2022	Industry Average
12.2	11.2

Measures the number of times, on average, the company collects receivables during the period.

L O 3

Average Collection Period

Chicago Cereal

.		2022	2021
	=	30.7	30.4

Giant Mills 2022	Industry Average
29.9	32.6

Analysts frequently use average collection period to assess the effectiveness of a company’s credit and collection policies.

L O 3

Inventory Turnover

Chicago Cereal

.		2022	2021
	=	7.5	7.9

Giant Mills 2022	Industry Average
7.4	6.7

The faster the inventory turnover, the less cash is tied up in inventory and less chance of inventory becoming obsolete.

L O 3

Days in Inventory

Chicago Cereal

.		2022	2021
	=	48.7	46.2

Giant Mills 2022	Industry Average
49.3	54.5

Measures the average number of days inventory is held.

L O 3

Nature of Solvency Ratios

Measure the ability of a company to survive over a long period of time

Debt to assets ratio and times interest earned provide information about debt-paying ability

Free cash flow provides information about solvency and ability to pay additional dividends or invest in new projects

L O 3

Debt to Assets Ratio

Chicago Cereal

.		2022	2021
	=	78%	81%

Giant Mills 2022	Industry Average
55%	55%

Provides some indication of company’s ability to withstand losses without impairing the interests of its creditors.

L O 3

Times Interest Earned

Chicago Cereal

.		2022	2021
	=	5.8	6.0

Giant Mills 2022	Industry Average
9.9	5.5

Provides an indication of company’s ability to meet interest payments as they come due.

L O 3

Free Cash Flow

Free cash flow =

Net cash provided by operating activities − Capital expenditures − Cash dividends

Chicago Cereal

		2022	2021
$1,503 − $472 − $475	=	$556 (in thousands)	$507 (in thousands)

Giant Mills 2022	Industry Average
$895 (in millions)	na

One indication of solvency is the amount of excess cash generated after investing in capital expenditures and paying dividends.

L O 3

Nature of Profitability Ratios

Measure the income or operating success of a company for a given period of time.

Income affects ability to obtain debt and equity financing, liquidity, and ability to grow

Creditors and investors are interested in evaluating profitability

Analysts use profitability as ultimate test of management’s operating effectiveness

L O 3

Relationships Among Profitability Measures

L O 3

Return on Common Stockholders’ Equity

Chicago Cereal

.		2022	2021
	=	48%	46%

Giant Mills 2022	Industry Average
25%	19%

Shows how many dollars of net income the company earned for each dollar invested by the owners.

L O 3

Return on Assets

10.

Chicago Cereal

.		2022	2021
	=	10.0%	9.4%

Giant Mills 2022	Industry Average
6.2%	5.3%

Measures the overall profitability of assets in terms of the income earned on each dollar invested in assets.

L O 3

Profit Margin

11.

Chicago Cereal

.		2022	2021
	=	9.4%	9.2%

Giant Mills 2022	Industry Average
8.2%	6.1%

Measures of the percentage of each dollar of sales that results in net income.

L O 3

Asset Turnover

12.

Chicago Cereal

.		2022	2021
	=	1.07	1.02

Giant Mills 2022	Industry Average
.76	.87

Measures how efficiently a company uses its assets to generate sales.

L O 3

Composition of Return on Assets

Ratios

Chicago Cereal

2022	9.4%	×	1.07 times	=	10.1%*
2021	9.2%	×	1.02 times	=	9.4%

*Difference from value due to rounding.

L O 3

Gross Profit Rate

13.

Chicago Cereal

.		2022	2021
	=	44%	44%

Giant Mills 2022	Industry Average
34%	30%

Indicates a company’s ability to maintain an adequate selling price above its cost of goods sold.

L O 3

Earnings Per Share

14.

Chicago Cereal

.		2022	2021
	=	$2.63	$2.40

Giant Mills 2022	Industry Average
$2.90	na

A measure of the net income earned on each share of common stock.

L O 3

Price Earnings Ratio

15.

Chicago Cereal

.		2022	2021
	=	20.1	20.9

Giant Mills 2022	Industry Average
24.3	35.8

Reflects investors’ assessments of a company’s future earnings.

L O 3

Payout ratio

16.

Chicago Cereal

.		2022	2021
	=	43%	45%

Giant Mills 2022	Industry Average
54%	37%

Measures the percentage of earnings distributed in the form of cash dividends.

L O 3

Learning Objective 4 Compare Financial Statement Analysis and Income Statement Presentation Under G A A P and I F R S

L O 4

A Look at I F R S (1 of 2)

No significant differences exist in the analysis methods used.

Basic objectives of the income statement are the same under both G A A P and I F R S.

Both the I A S B and the F A S B are interested in distinguishing normal levels of income from unusual items in order to better predict a company’s future profitability.

L O 4

A Look at I F R S (2 of 2)

Basic accounting for discontinued operations is the same under I F R S and G A A P.

Accounting for changes in accounting principles and changes in accounting estimates are the same for both G A A P and I F R S.

Both G A A P and I F R S follow the same approach in reporting comprehensive income.

L O 4

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Current assets Current liabilities

Current assets

Current liabilities

Cost of goods sold

Average inventory

365days

Inventory turnover

Net credit sales

Average net accounts receivable

365days

Accounts receivable turnover

Total liabilities

Total assets

Net income + Interest expense + Income t

ax expense

Interest expense

Net cash providedCapitalCash

by operating activitiesexpendituresdivid

ends

Market price per share

Earnings per share

Net income

Net sales

Net income

Average total assets

Net incomePreferred dividendsWeighted-average common shares outstanding

Gross profitNet sales

Net sales

Average total assets

Cash dividends declared on common stock

Net income

Net incomePreferred dividends

Average common stockholders' equity

Current Assets

Current Liabilities

Current ratio

$2,717

$4,044

Net credit sales

Average net accounts receivable

Accounts receivable turnover

(

)

$11,776

$1,026$9452

+¸

365 days

Accounts receivable turnover

Average collection period

365

11.9

Cost of goods sold

Average inventory

Inventory turnover

(

)

$6,597

$924$8242

+¸

365 days

Inventory turnover

Days in inventory

365

7.5

Total liabilities

Total assets

Debt to assets ratio

$8,871

$11,397

Net Income + Interest expense + Income t

ax expense

Interest expense

Times interest earned

$1,103$321$444

$321

Net income Preferred dividends

Average common stockholder's equity

Return on common stockholders’ equity

(

)

$1,103$0

$2,526$2,0692

+¸

Net income

Average total assets

Return on assets

(

)

$1,103

$11,397$10,7142

+¸

Net income

Net sales

Profit margin

$1,103

$11,776

Net sales

Average total assets

Asset turnover

(

)

$11,776

$11,397$10,7142

+¸

Profit Margin Asset Turnover Return on A

ssets

Net incomeNet SalesNet income

Net SalesAverage Total AssetsAverage Tot

alAssets

´=

Gross profit

Net sales

Gross profit rate

$5,179

$11,776

Net incomePreferred dividends

Weighted-average common shares outstandi

Earnings per share(EPS)

$1,103$0

418.7

Market price per share

Earnings per share

Price-earnings ratio

$52.92

$2.63

Cash dividends declared on common stock

Net income

Payout ratio

$475

$1,103