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Chapter 2: 2-1DQ (page 46)
Discuss some financial variables that affect the price-earnings ratio
The price-earning ratio is affected by the growth in revenues and the return on equity.
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Perez Corporation has the following financial data for the years 20X1 and 20X2:
20X1 | 20X2 | |
Sales | \(8,000,000 | \)10,000,000 |
Cost of goods sold | 6,000,000 | 9,000,000 |
Inventory | 800,000 | 1,000,000 |
c. What conclusions can you draw from part a and part b?
Jim Short鈥檚 Company makes clothing for schools. Sales in 20X1 were
\(4,820,000. Assets were as follows:
Cash | \)163,000 |
Accounts receivable | 889,000 |
Inventory | 411,000 |
New plant and equipment | 520,000 |
Total assets | $1,983,000 |
a. Compute the following:
1. Accounts receivable turnover.
2. Inventory turnover.
3. Fixed asset turnover.
4. Total asset turnover.
In January 2007, the Status Quo Company was formed. Total assets were \(544,000, of which \)306,000 consisted of depreciable fixed assets. Status
Quo uses straight-line depreciation of \(30,600 per year, and in 2007 it estimated its fixed assets to have useful lives of 10 years. Aftertax income has been \)29,000 per year each of the last 10 years. Other assets have not changed since 2007.
a. Compute return on assets at year-end for 2007, 2009, 2012, 2014, and 2016.
(Use $29,000 in the numerator for each year.)
Landers Nursery and Garden Stores has current assets of \(220,000 and fixed assets of \)170,000. Current liabilities are \(80,000 and long-term liabilities are \)140,000. There is $40,000 in preferred stock outstanding and the firm has
issued 25,000 shares of common stock. Compute book value (net worth)
per share.
Sosa Diet Supplements had earnings after taxes of $800,000 in 20X1 with 200,000 shares of stock outstanding. On January 1, 20X2, the firm issued 50,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnings after taxes increased by 30 percent.
a. Compute earnings per share for the year 20X1.
b. Compute earnings per share for the year 20X2.
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