This pack includes ACC 206 week 2 P 15-26 Danfield,Inc.

Using ratios to evaluate a stock investment

Comparative financial statement data of Danfield, Inc., follow:

DANFIELD, INC.

Comparative Income Statement

Years Ended December 31, 2012 and 2011

2012 2011

Net sales $ 467,000 $ 428,000

Cost of goods sold 237,000 218,000

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Gross profit $ 230,000 $ 210,000

Operating expenses 136,000 134,000

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Income from operations $ 94,000 $ 76,000

Interest expense 9,000 10,000

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Income before income tax $ 85,000 $ 66,000

Income tax expense 24,000 27,000

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Net income $ 61,000 $ 39,000

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DANFIELD, INC.

Comparative Balance Sheet

December 31, 2012 and 2011

2012 2011 2010

Current assets:

Cash $ 97,000 $ 95,000

Current receivables, net 112,000 118,000 $ 102,000

Inventories 145,000 163,000 203,000

Prepaid expenses 12,000 5,000

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Total current assets $ 366,000 $ 381,000

Property, plant, and equipment, net 211,000 179,000

————- ———–

Total assets $ 577,000 $ 560,000 598,000

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Total current liabilities $ 225,000 $ 246,000

Long-term liabilities 114,000 97,000

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Total liabilities $ 339,000 $ 343,000

Preferred stock, 3% 108,000 108,000

Common stockholders’ equity, no par 130,000 109,000 85,000

————– ———–

Total liabilities and stockholders’ equity $ 577,000 $ 560,000

————– ————

*Selected 2010 amounts

Market price of Danfield’s common stock: $86.58 at December 31, 2012, and

$46.54 at December 31, 2011.

Common shares outstanding: 12,000 during 2012 and 10,000 during 2011 and

2010.

3. All sales on credit.

Requirements:

1. Compute the following ratios for 2012 and 2011:

a. Current ratio

b. Times-interest-earned ratio

c. Inventory turnover

d. Gross profit percentage

e. Debt to equity ratio

f. Rate of return on common stockholders’ equity

g. Earnings per share of common stock

h. Price/earnings ratio

Decide (a) whether of Danfield’s ability to pay debts and to sell inventory improved or deteriorated during 2012 and (b) whether the investment attractiveness of its common stock appears to have increased or decreased.