Acc206 Principles of Accounting: P15-26A Comparative financial statement data of Danfield, Inc

Acc206 Principles of Accounting II

P15-26A Using ratios to evaluate a stock investment
Comparative financial statement data of Danfield, Inc., follow:
Danfield, Inc.
Comparative Income Statement
Years Ended December 31, 2012 and 2011
2012 2011
Net sales 467,000 428,000
Cost of goods sold 237,000 218,000
Gross profit 230,000 210,000
Operating expenses 136,000 134,000
Income from operations 94,000 76,000
Interest expense 9,000 10,000
Income before income tax 85,000 66,000
Income tax expense 24,000 27,000
Net income 61,000 39,000

Danfield, Inc.
Comparative Income Statement
Years Ended December 31, 2012 and 2011
2012 2011 2010*
Current assets:
Cash 97,000 95,000
Current receivables, net 112,000 118,000 102,000
Inventories 145,000 163,000 203,000
Prepaid expenses 12,000 5,000
Total current assets 366,000 381,000
Property, plant, and equipment, net 211,000 179,000
Total assets 577,000 560,000 598,000

Total current liabilities 225,000 246,000
Long-term liabilities 114,000 97,000
Total liabilities 339,000 343,000
Preferred stock, 3% 108,000 108,000
Common stockholders' equity, no par 130,000 109,000
Total liabilities and stockholders' equity 577,000 560,000

* Selected 2010 amounts
1. Market price of Danfield's common stock: $86.58 at December 31, 2012 and $46.54 at December 31, 2011.
2. Common shares outstanding: 12,000 during 2012 and 10,000 during 2011 and 2010.
3. All sales on credit.

Requirements
1. Compute the following ratios for 2012 and 2011:
a. Current ratio
b. Times-interest-earned ratio
c. Inventory turnover
d. Gross profit percentage
e. Debt to equity ratio
f. Rate of return on common stockholders' equity
g. Earnings per share of common stock
h. Price/earnings ratio

2. Decide (a) whether Danfield's ability to pay debts and sell inventory improved or deteriorated during 2012 and (b) whether the investment attractiveness of its common stock appears to have increased or decreased.
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