Compute the following ratios for 2022. (Round free cash flow to 0 decimal places, e.g. 5,275 and all other answers to 2 decimal places, e.8. 1.83 or 1.83 %. Use 365 days for calculation.) 59000
(a) Earnings per share
(b) Return on common stockholders' equity
(c) Return on assets
(d) Current ratio
(e) Accounts receivable turnover times
(f) Average collection period
(g) Inventory turnover
(h) Days in inventory
(i) Times interest earned
(j) Asset turnover
(k) Debt to Assets Ratio
(l) Free Cash Flow
Answer:
BLOSSOM COMPANY
Computation of the following ratios:
(a) Earnings per share:
Earnings per share = Net Income/Average Outstanding Common Stock
= $ 173,460/59,000 = $2.94
Average Common Stock = [($232,000/$4) + ($240,000/$4)]/2
= (58,000 + 60,000)/2 = 59,000 shares.
(b) Return on common stockholders' equity = Net Income/Equity
= $173,460/ $482,720 x 100 = 35.93%
(c) Return on assets = EBIT / Total Assets
= $173,460/821,520 x 100 = 21.11%
(d) Current ratio = Current Assets/Current Liabilities
= $302,320/$162,800 = 1.86 : 1
(e) Accounts receivable turnover times = Average Receivables/Net Sales
= $88,240/$1,512,400 = 0.58 times
(f) Average collection period = Accounts receivable turnover times x 365
= 0.58 x 365 = 211.70 days
(g) Inventory turnover = Cost of goods sold/average inventory
= $847,000/96,600 = 8.77
(h) Days in inventory = 365/Inventory turnover = 365/8.77 = 41.62 days
(i) Times interest earned = EBIT/Interest = $265,400/$17,600 = 15.08 times
(j) Asset turnover = Net Sales / Average Assets = $1,512,400/$751,880
= 2.01
(k) Debt to Assets Ratio = Total Debt/Total Assets = $338,800/$821,520 x 100
= 41.24%
(l) Free Cash Flow = Net Cash from Operations + Depreciation - Capital Expenditure = $176,000 +$55,060 - $108,800 = $122,260
Explanation:
a) BLOSSOM COMPANY
Income Statements For the Years Ended December 31
2022 2021
Net sales $1,512,400 $1,400,000
Cost of goods sold 847,000 804,800
Gross profit 665,400 595,200
Selling and administrative expenses 400,000 383,200
Income from operations 265,400 212,000
Other expenses and losses:
Interest expense 17,600 16,000
Income before income taxes 247,800 196,000
Income tax expense 74,340 58,800
Net income $ 173,460 $ 137,200
b) BLOSSOM COMPANY
Balance Sheets December 31
Assets 2022 2021
Current assets
Cash $ 48,080 $ 51,360
Debt investments (short-term) 59,200 40,000
Accounts receivable 94,240 82,240
Inventory 100,800 92,400
Total current assets 302,320 266,000
Plant assets (net) 519,200 416,240
Total assets $821,520 $682,240
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable $ 128,000 $116,320
Income taxes payable 34,800 33,600
Total current liabilities 162,800 149,920
Bonds payable 176,000 160,000
Total liabilities 338,800 309,920
Stockholders’ equity
Common stock ($4 par) 232,000 240,000
Retained earnings 250,720 132,320
Total stockholders’ equity 482,720 372,320
Total liabilities + equity $821,520 $682,240
All sales were on account. Net cash provided by operating activities for 2022 was $176,000. Capital expenditures were $108,800, and cash dividends were $55,060.
c) These ratios measure an entity's financial performance and position and should not be interpreted as standalone figures. They become more meaningful when compared over an entity's periods (trend analysis) and with competitors' or the industry averages.
