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Problem: The condensed balance sheet and income statement for Petronila Company are presented below. Petronila Company...

Problem:
The condensed balance sheet and income statement for Petronila Company are presented below.

Petronila Company
Balance Sheet
At December 31, 2019

Assets
Cash $ 19,000
Short-term investments 35,000
Accounts receivable (net) 48,400
Merchandise inventory 70,600
Property, plant, and equipment (net) 250,000
Intangible assets 12,400
Total Assets $435,400
Liabilities
Current liabilities $108,400
11% Bonds payable, long term 100,000
Total Liabilities $208,400
Stockholder’s Equity
Common Stocks, $1 par value $ 70,000
Retained earnings 157,000
Total stockholder’s equity $227,000
Total liabilities and stockholder’s equity $435,400

Petronila Company
Income Statement

For the Year ended December 31, 2019

Net Sales $704,000
Cost of goods sold 422,400
Gross profit $281,600
Operating expenses 166,200
Income before interest expense and income tax $115,400
Interest expense 11,000
Income before income taxes $104,400

Income taxes 31,320
Net income $ 73,080
Earnings per share $1.04
Dividends per common share $.50
Market price per share $15.50
Required: 40 points
Use the formulas presented in Exhibit 17-16, page 737, to make a ratio analysis of Petronila
Company at December 31, 2019.
Prepare a Ratio Analysis Schedule including Liquidity and Efficiency, Solvency, Profitability, and
Market Prospects formulas, use the model presented below:

RATIO ANALYSIS SCHEDULE
RATIOS* FORMULA RESULTS EXPLANATIONS

*NOTE: Eliminated the word average from formulas, the company don’t have preferred dividends,
number of common shares outstanding at December 31, 2019, were 70,000.

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Homework Answers

Answer #1

A) LIQUIDITY RATIOS

i) Current ratio =Current asset ÷ current liabilities

= 173000 ÷ 108400

= 1.60

ii) Acid test ratio = quick assets ÷ current laibilities

= 173000 - 70600 ÷ 108400

= 0.94

B) EFFICIENCY RATIO

i) Receivable turnover ratio = credit sales ÷ Average receivable

= 704000 ÷ 48400

=14.54

ii) collection period days = 365 ÷ receivable turnover ratio

= 365 ÷ 14.54

= 25 days

C)SOLVANCY RATIOS

solvancy ratio = Net income ÷ total liabilities

= 73080 ÷ 435400

= 16.78

Proprietary ratio = equity ÷ total asset

= 227000 ÷ 435400

=52.14 %

D) PROFITABILITY RATIO

i) gross profit to turnover = gross profit ÷ turnover

= 281600 ÷ 704000

= 40 %

ii) Net profit to turnover = net profit ÷ turnover

= 73080÷ 704000

= 10.38 %

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