Problem 11-6a

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Problem 11-6a
Your company is considering the possible acquisition of Growth, Inc. The financial statements of Growth, Inc, follow:
Growth, Inc
Balance Sheet
December 31, 2011 and 2010
Assets 2011 2010
Current Assets:
Cash 64,346 11,964
Accounts receivables, less allowance of $750 for doubtful accounts 99,021 83,575
Inventories, FIFO 63,414 74,890
Prepaid expenses 834 1,170
Total current assets 227,615 171,599
Investments and other assets 379 175
Property, plant and equipment:
Land and land improvements 6,990 6,400
Buildings 63,280 59,259
Machinery and equipment 182,000 156,000
252,270 221,659
Less: Accumulated depreciation (110,000) (98,000)
Net property, plant, and equipment 142,270 123,659
Total assets 370,264 295,433
Liabilities and Stockholder's equity
Current liabilities:
Accounts payable 32,730 26,850
Federal income taxes 5,300 4,800
Accrued liabilities 30,200 24,500
Current portion of long-term debt 5,500 5,500
Total current liabilities 73,730 61,650
Long term debt 76,750 41,900
Other long-tern liabilities 5,700 4,300
Deferal federal income taxes 16,000 12,000
Total libilities 172,180 119,850
Stockholder's equity:
Capital stock 44,000 43,500
Retained earnings 154,084 132,083
Total stockholder's equity 198,084 175,583
Total liabilities and stockholder's equity 370,264 295,433
Growth, Inc
Statement of Income
Years ended Decembebr 31, 2011, 2010, and 2009
2011 2010 2009
Revenues 578,530 523,249 556,549
Costs and expenses
Cost of products sold 495,651 457,527 482,358
Sellings, general, and administrative 35,433 30,619 29,582
Interest and debt expense 4,308 3,951 2,630
535,392 492,097 514,570
Income before income taxes 43,138 31,152 41,979
Provision for income taxes 20,120 12,680 17,400
Net income 23,018 18,472 24,579
Net income per share 2.27 1.85 2.43
Partial notes: Under the lifo method, inventories have been reduced by approximately $35,300 and $41,000 at December 31, 2011
and 2010, respectively, from current cost, which would be reported under the first-in, first-out method.
The effective tax rates were 36.6%, 30.7% and 31.4%, respectively, for the years ended December 31, 2011, 2010 and 2009.
Required
Compute the following for 2011, without considering the LIFO reserve:
Debt Liquidity
1. Debt ratio 1. Days' sale in inventory
2. Debt/equity ratio 2. Merchandise inventory turnover
3. Times interest earned 3. Inventory turnover in days
4. Operating cycle
Profitability 5. Working capital
1. Net profit margin 6. Current ratio
2. Total asset turnover 7. Acid test ratio
3. Return on assets 8. Cash ratio
4. Return on total equity
1. Debt ratio total liabilities 1. Days' sale in inventory ending inv
total assets COGS/365
0.47 172,180 47 63,414
370,264 1,358
2. debt/equity ratio total liabilities 2. Merchandise inventory turnover COGS
shareholder's equity avg inv
0.87 172,180 7.17 495,651
198,084 69,152
3. times interest earmed 3. Inventory turnover in days avg inv
COGS/365
51 69,152
1. Net profit margin net income b4 noncontrol int, 1,358
equity income and nonrecurr items
net sales 4. Operating cycle accts rec turnover in dys + inv turnover in dys
3.98% 23,018 avg gross rec 51
578,530 net sales/365
2. Total asset turnover net sales 91,673
avg total assets 1,585
1.74 578,530 109 58 51
332,849
5. Working capital ca - cl
3. Return on assets net income b4 noncontrol int
and nonrecurr items 153,885 227,615 73,730
avg total assets
6. Current ratio ca
7% 23,018 cl
332,849
3.09 227,615
4. return on total equity 73,730
7. Acid test ratio cash equivelents + market securities + net rec
cl
2.23 164,201
73,730
8. Cash ratio cash equivelents + market securities
cl
0.87 64,346
73,730

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