GANTNER CORPORATION
Comparative Balance Sheet
December 31
2002 2001
Assets
Cash $ 4,000 $ 6,000
Accounts receivable (net) 12,000 10,000
Inventory 14,000 20,000
Land 28,000 8,000
Machinery 62,000 60,000
Accumulated amortization (20,000) (14,000)
Total assets $100,000 $90,000
Liabilities and Shareholders' Equity
Accounts payable $ 10,000 $26,000
Long-term notes payable 35,000 19,000
Common shares 40,000 40,000
Retained earnings 15,000 5,000
Total liabilities and shareholders' equity $100,000 $90,000
GANTNER CORPORATION
Income Statement
For the year ended December 31, 2002
Sales $390,000
Less: Sales returns and allowances 10,000
Net sales $380,000
Cost of goods sold 300,000
Gross profit 80,000
Selling expenses 26,000
Administrative expenses 20,000
Income before income taxes 34,000
Income tax expense 15,000
Net income $ 19,000
Additional Information: All sales were on account. Common shares were issued at $10 per share. The market price of Gantner's common shares was $32 on December 31, 2001, and $38 on December 31, 2002.
Instructions: Calculate the indicated ratios at December 31, 2002, or for the year ended December 31, 2002, as appropriate. Report answers to two decimal places.
1. Return on assets is .
2. Acid test ratio is .
3. Profit margin is .
4. Debt to total assets is .
5. Asset turnover is .
6. Receivables turnover is .
7. Price-earnings ratio is .
8. Current ratio is
To calculate the indicated ratios, we need to use the information provided in the balance sheet and income statement. Let's go through each ratio and how to calculate it:
1. Return on assets: This ratio measures the profitability of a company's assets. It is calculated by dividing net income by total assets and multiplying by 100 to express it as a percentage.
Formula: (Net Income / Total Assets) * 100
2. Acid test ratio: Also known as the quick ratio, this ratio measures a company's ability to pay off its current liabilities using its most liquid assets. It excludes inventory from current assets since it may not be easily convertible to cash.
Formula: (Cash + Accounts Receivable) / Current Liabilities
3. Profit margin: This ratio measures the company's profitability by assessing how much profit it generates from its sales revenue. It is calculated by dividing net income by net sales and multiplying by 100 to express it as a percentage.
Formula: (Net Income / Net Sales) * 100
4. Debt to total assets: This ratio shows the proportion of a company's assets that are financed by debt. It is calculated by dividing total liabilities by total assets and multiplying by 100 to express it as a percentage.
Formula: (Total Liabilities / Total Assets) * 100
5. Asset turnover: This ratio measures how efficiently a company utilizes its assets to generate sales. It is calculated by dividing net sales by average total assets.
Formula: Net Sales / Average Total Assets
6. Receivables turnover: This ratio measures how quickly a company collects outstanding accounts receivable during a certain period. It is calculated by dividing net credit sales by the average accounts receivable.
Formula: Net Credit Sales / Average Accounts Receivable
7. Price-earnings ratio: This ratio is used to evaluate the market price of a company's shares relative to its earnings per share (EPS). It is calculated by dividing the market price per share by the EPS.
Formula: Market Price per Share / Earnings per Share
8. Current ratio: This ratio assesses a company's ability to pay off its short-term liabilities using its current assets.
Formula: Current Assets / Current Liabilities
Using the given financial statements, you can now substitute the values into the appropriate formulas to calculate each ratio as requested.