Hermetic, Inc., Balance Sheet (as of December 31) Assets 2013 2014 Current asset
ID: 2773506 • Letter: H
Question
Hermetic, Inc., Balance Sheet (as of December 31)
Assets 2013 2014
Current assets
Cash $ 45 $ 50
Accounts receivable 270 290
Inventory 320 365
Total $ 635 $ 705
Fixed assets
Net plant and equipment 985 1100
Total assets $1620 $1805
Liabilities and equity 2002 2003
Current liabilities
Accounts payable $ 210 $ 260
Notes payable 110 175
Total $ 320 $ 435
Long-term debt 215 185
Stockholders’ equity
Common stock and paid-in surplus 290 290
Retained earnings 795 895
Total $1085 $1185
Total liabilities and equity $1620 $1805
Income Statement (2014)
Net sales $710.00
Cost of goods sold 480.00
Depreciation 30.00
Earnings before interest and taxes (EBIT) $200.00
Interest 20.00
Taxable income 180.00
Taxes 53.45
Net income $126.55
Retained earnings $100.00
Dividends 26.55
d) At the end of 2014, the firm had 100 shares of common stock outstanding and the stock price was $18 per share.
USE END OF 2014 VALUES TO CALCULATE: EPS, DPS, P/E RATIO, MARKET-TO-BOOK RATIO, EBITDA RATIO, ROE, ROA, IGR, SGR, PROFIT MARGIN, TIMES INTEREST EARNED RATIO, DAYS IN SALES RECEIVABLE, TOTAL DEBT RATIO, TOTAL ASSETS TURNOVER, CURRENT RATIO.
Explanation / Answer
(1)
EPS = Net Income / Number of shares outstanding
= $126.55 / 100 = $1.2655
(2)
DPS = Dividend paid / Number of shares outstanding
= $26.55 / 100 = $0.2655
(3)
P/E = Share price / EPS
= $18 / 1.2655 = $14.22
(4)
Market-to-Book value = Market price of share / Book price of share
= $18 / $(290 / 100) = 6.21
(5)
EBITDA Ratio = EBITDA / Sales = (EBIT + Depreciation) / Sales = $(200 + 30) / $710 = 32.39%
(6)
ROE = Net Income / Stockholder Equity = $126.55 / $290 = 43.64%
(7)
ROA = Net Income / Average Total Assets = $126.55 / $[(1,805 + 1,620) / 2] = 7.39%
(8)
IGR, Internal Growth Rate = [(ROA - b)] / {1 - (ROA x b)} where b: (1 - Dividend payout ratio)
b = 1 - ($26.55 / $126.55) = 1 - 0.21 = 0.79
So, IGR = [0.0739 - 0.79] / [1 - (0.0739 x 0.790] = - 0.72 / 0.94 = - 0.766 = - 76.6%
(9)
SGR, Sustainable Growth rate = ROE x b
= 0.4364 x 0.79 = 34.48%
(10)
Profit Margin = Net Income / Sales = $126.55 / $710 = 17.82%
(11)
Times Interest earned = EBIT / Interest Paid = $200 / $20 = 10
(12)
Days in Sales Receivable = 365 x Average Accounts Receivable / Net (Credit Sales) = 365 x $[(290 + 270) / 2] / $710* = 143.94 days
*Assuming all sales are on account
(13)
Total debt ratio = Total debt (Long term liabilities) / Total Assets = $185 / $1,805 = 10.25%
(14)
Total Asset Turnover = Sales / Average Total Assets = $710 / $[(1,805 + 1,620) / 2] = 41.46%
(15)
Current ratio = Current assets / Current liabilities = $705 / $435 = 1.62