Using The Balance Sheet And Income Statement Below 1 Gross M

Using The Balance Sheet And Income Statement Below 1 Gross Margin

Using the balance sheet and income statement provided, the task involves calculating various financial ratios and metrics to analyze the company's financial health and performance. The specific calculations include gross margin percentage, earnings per share, price-earnings ratio, dividend payout ratio, dividend yield ratio, return on total assets, return on common shareholders' equity, book value per share, working capital, and current ratio. These metrics are essential for stakeholders to assess profitability, liquidity, efficiency, and shareholder value.

Given the data, we will proceed step-by-step to compute each metric, beginning with the available financial statements and then deriving the necessary figures where data is missing or requires calculation.

Paper For Above instruction

1. Gross Margin Percentage

The gross margin percentage indicates the proportion of revenue that exceeds the cost of goods sold (COGS). It is calculated as:

Gross Margin Percentage = (Gross Margin / Sales) × 100

From the income statement, the gross margin is given as $430,000, and sales are $700,000 (since COGS is provided as $700,000, and gross margin is sales minus COGS:

Gross Margin = Sales - COGS = $700,000 - $270,000

However, the gross margin is specified as $430,000, indicating the sales are likely $700,000, and COGS is $270,000, which matches this calculation. Thus, the gross margin percentage:

Gross Margin Percentage = ($430,000 / $700,000) × 100 ≈ 61.43%

2. Earnings Per Share (EPS)

EPS measures the amount of net income earned per share of common stock:

EPS = Net Income / Number of Common Shares Outstanding

From the balance sheet, the common stock is at $2 par value, but the number of shares isn’t provided directly. Alternatively, we can deduce the number of common shares from the total common stock value.

Assuming 'common stock' is represented as total common stock value, and given the 'common stock, $2 par value', the number of shares is:

Number of common shares = Common stock / par value = (Total common stock value) / $2

Suppose total common stock value is given in the balance sheet as a dollar amount, but it is missing here. To proceed, let's assume the common stock value is, for example, $200,000, then:

Number of shares = $200,000 / $2 = 100,000 shares

Then, EPS = $110,000 / 100,000 ≈ $1.10

3. Price-Earnings (P/E) Ratio

The P/E ratio shows how much investors are willing to pay per dollar of earnings. It is calculated as:

P/E Ratio = Market Price per Share / Earnings per Share

Since the market price per share isn’t provided, this ratio cannot be calculated accurately without additional data. If assumed, for example, the market price per share is $20, then:

P/E Ratio = $20 / $1.10 ≈ 18.18

4. Dividend Payout Ratio

This ratio indicates the percentage of earnings paid out as dividends:

Dividend Payout Ratio = Dividends Paid / Net Income

Dividends paid aren’t explicitly provided; assuming dividend payout is via preferred dividends (if any), but since preferred stock pays 5%, and the preferred stock value is missing, it's difficult to compute exactly. Alternatively, if dividends paid are given in the data, we could proceed.

Suppose dividends paid are $50,000, then:

Dividend Payout Ratio = $50,000 / $110,000 ≈ 45.45%

5. Dividend Yield Ratio

This ratio expresses annual dividends per share as a percentage of the market price per share:

Dividend Yield Ratio = Dividends per Share / Market Price per Share

Again, without explicit dividend data and market price, this cannot be precisely calculated. Using previous assumptions, if dividends per share are $0.50 and market price is $20:

Dividend Yield Ratio = $0.50 / $20 = 2.5%

6. Return on Total Assets (ROA)

ROA measures how efficiently assets generate net income. It is calculated as:

ROA = Net Income / Total Assets

From the balance sheet, total assets for Year 2 can be found by adding current assets and plant & equipment:

Total Assets Year 2 = Current assets + Net plant & equipment

Suppose current assets are, for example, $500,000, and net plant & equipment are $300,000, then:

Total Assets = $500,000 + $300,000 = $800,000

Thus, ROA = $110,000 / $800,000 ≈ 13.75%

7. Return on Common Shareholders’ Equity (ROE)

ROE measures profitability from shareholders' perspective. It is:

ROE = Net Income / Shareholders' Equity

Using the balance sheet’s shareholders’ equity for Year 2, suppose total equity is $500,000, then:

ROE = $110,000 / $500,000 = 22%

8. Book Value per Share

Book value per share reflects the net asset value per share:

Book Value per Share = Total Shareholders’ Equity / Number of Common Shares

With previous assumptions, if total equity is $500,000 and the number of common shares is 100,000:

Book Value per Share = $500,000 / 100,000 = $5

9. Working Capital

Working capital measures liquidity and is the difference between current assets and current liabilities:

Working Capital = Current Assets - Current Liabilities

Suppose current assets are $500,000, and current liabilities sum to $250,000, then:

Working Capital = $500,000 - $250,000 = $250,000

10. Current Ratio

The current ratio evaluates liquidity:

Current Ratio = Current Assets / Current Liabilities

Using the same assumptions:

Current Ratio = $500,000 / $250,000 = 2.0

In conclusion, these calculations demonstrate various facets of the company's financial performance and position, offering insights into profitability, liquidity, efficiency, and shareholders' value. However, precise values depend on actual data such as total common stock value, number of shares, dividends paid, and specific asset and liability figures, which are often obtained from detailed financial statements. For comprehensive analysis, access to complete data is necessary.

References

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  • Gibson, C. H. (2013). Financial Reporting and Analysis. Cengage Learning.
  • Higgins, R. C. (2012). Analysis for Financial Management. McGraw-Hill Education.
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  • Penman, S. H. (2012). Financial Statement Analysis and Security Valuation. McGraw-Hill Education.
  • White, G. I., Sondhi, A. C., & Fried, D. (2003). The Analysis and Use of Financial Statements. Wiley.
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