Page 73 - Financial Statement Analysis

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50 Financial Statement Analysis

EXERCISE 1–5 Refer to the information in Exercise 1–3 about Mixon Company. The company’s income state-
Evaluating Short-Term ments for the years ended December 31, 2006 and 2005 show the following:
Liquidity 2006 2005
Sales . . . . . . . . . . . . . . . . . . . . . . $672,500 $530,000
Cost of goods sold . . . . . . . . . . . . $410,225 $344,500
Other operating expenses . . . . . . 208,550 133,980
Interest expense . . . . . . . . . . . . . 11,100 12,300
Income taxes . . . . . . . . . . . . . . . . 8,525 7,845
Total costs and expenses . . . . . . . . . . . . . . . . . . . (638,400) (498,625)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,100 $ 31,375

Earnings per share . . . . . . . . . . . . . . . . . . . . . . . $ 2.10 $ 1.93

Required:
For the years ended December 31, 2006 and 2005, assume all sales are on credit and then compute
the following: (a) collection period, (b) accounts receivable turnover, (c) inventory turnover, and
(d ) days’ sales in inventory. Comment on the changes in the ratios from 2005 to 2006.

EXERCISE 1–6 Refer to the information in Exercises 1–3 and 1–5 about Mixon Company. Compare the long-term
Evaluating Risk and risk and capital structure positions of the company at the end of 2006 and 2005 by computing the
Capital Structure following ratios: (a) total debt ratio and (b) times interest earned. Comment on these ratio results.

EXERCISE 1–7 Refer to the financial statements of Mixon Company in Exercises 1–3 and 1–5. Evaluate the effi-
Evaluating Efficiency ciency and profitability of the company by computing the following: (a) net profit margin,
and Profitability (b) total asset turnover, and (c) return on total assets. Comment on these ratio results.

EXERCISE 1–8 Refer to the financial statements of Mixon Company in Exercises 1–3 and 1–5. The following
Evaluating Profitability additional information about the company is known:
Common stock market price, December 31, 2006 . . . . . . $15.00
Common stock market price, December 31, 2005 . . . . . . 14.00
Annual cash dividends per share in 2006 . . . . . . . . . . . . 0.60
Annual cash dividends per share in 2005 . . . . . . . . . . . . 0.30
To help evaluate the profitability of the company, compute the following for 2006 and 2005:
(a) return on common stockholders’ equity, (b) price-earnings ratio on December 31, and (c) divi-
dend yield.

EXERCISE 1–9 Common-size and trend percents for JBC Company’s sales, cost of goods sold, and expenses follow:
Determining Income
COMMON-SIZE PERCENTS TREND PERCENTS
Effects from Common-
Size and Trend Percents 2006 2005 2004 2006 2005 2004
Sales . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 104.4% 103.2% 100.0%
Cost of goods sold . . . . . . 62.4 60.9 58.1 112.1 108.2 100.0
Expenses . . . . . . . . . . . . . 14.3 13.8 14.1 105.9 101.0 100.0

Determine whether net income increased, decreased, or remained unchanged in this three-year
period.