[syaaram7805]

I have been working on this problem for a couple of days now and I am hoping I have it correct. Any guidance or help would be greatly appreciated. Thanks!

JACK FROST COMPANY
Income Statements
For the Years Ended December 31
2007 2006
Net sales $1,890,540 $1,750,500
Cost of goods sold 1,058,540 996,000
Gross profit 832,000 754,500
Selling and administrative expenses 506,000 479,000
Income from operations 326,000 275,500
Other expenses and losses
Interest expense 25,000 19,000
Income before income taxes 301,000 256,500
Income tax expense 86,000 77,000
Net income $215,000 $179,500

JACK FROST COMPANY
Balance Sheets
December 31
Assets 2007 2006
Current assets
Cash $ 60,100 $ 64,200
Short-term investments 74,000 50,000
Accounts receivable 107,800 102,800
Inventory 133,000 115,500
Total current assets 374,900 332,500
Plant assets (net) 615,300 520,300
Total assets $990,200 $852,800
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable $160,000 $145,400
Income taxes payable 43,500 42,000
Total current liabilities 203,500 187,400
Bonds payable 210,000 200,000
Total liabilities 413,500 387,400
Stockholders’ equity
Common stock ($5 par) 290,000 300,000
Retained earnings 286,700 165,400
Total stockholders’ equity 576,700 465,400
Total liabilities and stockholders’ equity $990,200 $852,800

All sales were on account. Net cash provided by operating activities for 2007 was
$240,000.

Capital expenditures were $120,000, and cash dividends were $80,000.

Instructions Compute the following ratios for 2007.
(a) Earnings per share. 215,000/290,000 = $0.74
(b) Return on common stockholders’ equity. 215,000 - 290,000/521,050 = -14.3%
(c) Return on assets. 215,000/921,500 = 23.3%
(d) Current ratio. 60,100/160,000 = .38
(e) Receivables turnover. 1,890,540 - 240,000/107,800 = 15.3
(f) Average collection period. 365/15.3 = 23.9
(g) Inventory turnover. 1,058,540/33,250 = 31.8
(h) Days in inventory. 365/31.8 = 11.5
(I) Times interest earned. 326,000/25000 = 13.04
(j) Asset turnover. 1,890,540/247,550 = 7.64
(k) Debt to total assets. 413,500/990,200 = 42%
(l) Current cash debt coverage. 240,000/195,450 = 1.23
(m) Cash debt coverage. 240,000/921,500 = 0.26
(n) Free cash flow. 240,000 - 120,000 - 80,000 = $40,000

[morgaine300]

Sorry for the delay, but I haven't had time to tackle something this long.

First comment is that different sources can give these equations differently, meaning there could be differences between how I would do them and how your textbook would do them. Without the equations you've been given, there's no way to know for sure.

There are a lot of problems here, as in, most of them are incorrect. I don't know where the problem lies, because I don't even know where you got some of these numbers. I don't know if you do not understand the equations you've been given, or whether you don't understand what the numbers in the statements mean, or what. Since I'm not going to go through and do them all for you, all I can do is give some hints and ask some questions about where you are getting some things from. To help you actually understand how to do them, I would need to know more about what exactly it is you aren't understanding. And you'd have to ask specific questions.

Real quickly, though, one commonality among all of these is that most are a division. Things that are called a ratio, a rate, return on, per... are generally the first thing divided by the second thing. i.e. "debt to equity ratio" is debt divided by equity, right in order.

Let's just start at the top.
a) earnings per share -- you've used the total value of the common stock, not the shares. (Keep in mind stock is always listed at par)

b) I think you've memorized some stuff and don't know where/how to apply it. You're trying to subtract stuff out that doesn't apply here. The amount of return that belongs to the common stockholders is minus preferred dividends. There aren't any preferred dividends, so what's to subtract out? You subtracted out the entire common stock value from your return.

c) Correct

d) Current assets/current liabilities. You have picked out one current asset and one current liability.

e) What's the -240,000? Also, this is one where you need to check your book. This is usually done with average receivables, rather than end of year.

f) Right idea, but (e) has to be correct first.

g) What is the 33,250?

h) Ditto what I said for (f). Right idea, but have to have (g) correct first.

I) Correct

j) Where did you get the 247,550? It's not current, it's not non-current, it's not the total and it's not any average.

k) Correct, but are you supposed to take this to 2 decimals?

As for the last 3, I'm not sure. Back in the stone ages when I went to school, I didn't learn these cash flow ratios. Or if I did, it was maybe once & I just don't remember. I don't have any resources handy at the moment so I tried googling for them and I'm finding different things. i.e. (l) you've done as an average of current debt, but at two different resources I haven't seen this as an average. (In fact, one place specifically says "interest-bearing" short term debt, but I think we can dispense with getting that complicated.) I only found free cash flow one place and it didn't subtract dividends, but I can see the point of doing so. (m) I am not finding at all, but given what (l) is, I can assume that's operating cash divided by total liabilities. What I can say about that is that you've used assets, not liabilities.

See what you can do with this. If you can figure out what exactly it is you aren't understanding about it, I might be able to help stear you in a direction to start getting these on your own.