MAS – Financial Analysis

Solutions to Straight Problems

Problem 1
a. Receivables Turnover = Credit sales/Average receivables
= $13,700,300 / [($4,550,000 + $3,800,000)/2]
= 3.28 times

b. Current ratio = Current Assets / Current Liabilities

For 2013:
Current Ratio = ($552,330 + $4,550,000 + $920,360)/$7,200,300
= 0.84 times
For 2014:
Current ratio = ($599,780 + $3,800,000 + $1,223,440)/$7,476,000
= 0.75 times

c. Quick ratio = (Current assets – inventories – prepaid expenses)/current liabilities

For 2013:
Quick ratio = ($552,330 + $4,550,000)/$7,200,300
= 0.71 times
For 2014:
Quick ratio = ($599,780 + $3,800,000)/$7,476,000
= 0.59 times

d. Inventory turnover = Cost of goods sold / average inventory

= $8,905,195 / [($920,360+$1,223,440)/2]
= 8.31 times

Problem 2

Tabular format for some items required in the solution (in $):
Q4 Q3 Q2 Q1
Sales 901800 911300 909600 917400
CGS 304500 317100 316700 321900
Gross profit 597300 594200 592900 595500
Operating expense 247700 259100 257300 261400
EBIT 349600 335100 335600 334100
Interest expense 3600 3600 3600 3500
Income before tax 346000 331500 332000 330600
Income tax 84300 87200 87200 89700
Net income 261700 244300 244800 240900

Average common stock

outstanding 793030 788064 789670 803000

a. GPP 66.23% 65.20% 65.18% 64.91%

b. Profit margin
(net income/sales) 29.02% 26.81% 26.91% 26.26%
c. Times interest earned
(EBIT/interest expense) 97.11 93.08 93.22 95.46
 d. Earnings ($) per share
[(net income-preferred
dividends) / avg.common
stock outstanding] 0.33 0.31 0.31 0.30

e. P/E ratio at the end of the year = Stock price divided by total EPS for the last four quarters.
P/E ratio = $24 / (0.33 + 0.31 + 0.31 + 0.30)
= 19.2