The comparative financial statements prepared at December 31 for Golden Corporat
ID: 2792059 • Letter: T
Question
The comparative financial statements prepared at December 31 for Golden Corporation showed the following summarized data:
Stockholders’ equity totaled $30,600 at the beginning of the previous year. Compute the return on equity (ROE) ratios for the current and previous years. (Round your answers to 1 decimal place.)
Net property and equipment totaled $35,500 at the beginning of the previous year. Compute the fixed asset turnover ratios for the current and previous years. (Round your answers to 2 decimal places.)
Compute the debt-to-assets ratios for the current and previous years. (Round your answers to 2 decimal places.)
Compute the times interest earned ratios for the current and previous years. (Round your answers to 1 decimal place.)
After Golden released its current year’s financial statements, the company’s stock was trading at $31. After the release of its previous year’s financial statements, the company’s stock price was $22 per share. Compute the P/E ratios for both years. (Round your intermediate calculations and final answers to 2 decimal places.)
The comparative financial statements prepared at December 31 for Golden Corporation showed the following summarized data:
Explanation / Answer
Ans. 4a. Calculation of Return on Equity (ROE) = Net income for equity/Average Shareholder equity
Step 1: Calculation of Average shareholder equity (All Figure in $)
Current Year Previous Year Begning of P/Y
Equity $30600 $30600 $30600
Addion on equity $5200 $5100 -
Retained Earning $13230 $5200 -
Total Share holder equity $49030 $40900 $30600
Average shareholder equity $44965 $35750
Net income $11130 $10000
ROE 24.75% 27.97%
5.a Calculation of Fixed Assets Turnover Ratio = Net Sales/ Average Fixed Assets
Step: 1 Calculation of Average Fixed Assets
Current Previous Begning P/Y
Profit ,plant and equipment $46000 $39000 $35500
Average Fixed Assets $42500 $37250 -
Sales $185000 $169000
Fixed Assets Turnover Ratio 4.35times 4.54 times
6a Calculation of Debt to Assets Ratio = Total Lialities /Total Assets
Step 1 Calculation of Total Liabilities
Current Previous Year
Current Liabilites $16700 $19700
Note Payable $46000 $46000
Total Liabilities(1) $62700 $65700
Total Assets (2) $111730 $106600
Debt to Assets Ratio (1/2) 56% 62%
7a Calculation of Times Interest Earned Ratio or Interest coverage Ratio = EBIT/Interest exp.
Current Year Previous Year
Income before tax $15900 $13100
Add: Interest Exp. $2800 $2700
EBIT(1) $18700 $15800
Interest exp. (2) $2800 $2700
Intt. Coverage Ratio (1/2) 6.68 5.85
8a. Calculation of P/E Ratio
Step1: Calculation of Earning Per share
Current Year Previous Year
Net income(1) $11130 $10000
No of share(2) 6120 6120
EPS (1/2) $1.82 $1.63
Market Price $31 $22
P/E Ratio (Mkt price/EPS) 17.03 13.50