PA13-2 Analyzing Comparative Financial Statements Using Selected Ratios [LO 13-4, LO 13-5]

The comparative financial statements prepared at December 31 for Pinnacle Plus showed the following summarized data: Current Year Previous Year Income Statement Sales Revenue $ 110,000 $ 99,000 Cost of Goods Sold 52,000 48,000 Gross Profit 58,000 51,000 Operating Expenses 36,000 33,000 Interest Expense 4,000 4,000 Income before Income Tax Expense 18,000 14,000 Income Tax Expense (30%) 5,400 4,200 Net Income $ 12,600 $ 9,800 Balance Sheet Cash $ 69,500 $ 38,000 Accounts Receivable, Net 17,000 12,000 Inventory 25,000 38,000 Property and Equipment, Net 95,000 105,000 Total Assets $ 206,500 $ 193,000 Accounts Payable $ 42,000 $ 35,000 Income Tax Payable 1,000 500 Note Payable (long-term) 40,000 40,000 Total Liabilities 83,000 75,500 Common Stock (par $10) 90,000 90,000 Retained Earnings 33,500 27,500 Total Liabilities and Stockholders Equity $ 206,500 $ 193,000 During the current year, cash dividends amounting to $6,600 were declared and paid. Required: 1-a. Compute the gross profit percentage in the current and previous years. (Round your answers to 1 decimal place.) 1-b. Are the current year results better, or worse, than those for the previous year? Better Worse 2-a. Compute the net profit margin for the current and previous years. (Round your answers to 1 decimal place.) 2-b. Are the current year results better, or worse, than those for the previous year? Better Worse 3-a. Compute the earnings per share for the current and previous years. (Round your answers to 2 decimal places.) 3-b. Are the current year results better, or worse, than those for the previous year? Better Worse 4-a. Stockholders' equity totaled $100,000 at the beginning of the previous year. Compute the return on equity (ROE) ratios for the current and previous years. (Round your answers to 1 decimal place.) 4-b. Are the current year results better, or worse, than those for the previous year? Better Worse 5-a. Net property and equipment totaled $110,000 at the beginning of the previous year. Compute the fixed asset turnover ratios for the current and previous years. (Round your answers to 2 decimal places.) 5-b. Are the current year results better, or worse, than those for the previous year? Better Worse 6-a. Compute the debt-to-assets ratios for the current and previous years. (Round your answers to 2 decimal places.) 6-b. Is debt providing financing for a larger or smaller proportion of the company's asset growth? Larger Proportion Smaller Proportion 7-a. Compute the times interest earned ratios for the current and previous years. (Round your answers to 1 decimal place.) 7-b. Are the current year results better, or worse, than those for the previous year? Better Worse 8-a. After Pinnacle Plus released its current year's financial statements, the company's stock was trading at $18. After the release of its previous year's financial statements, the company's stock price was $15 per share. Compute the P/E ratios for both years. (Round your intermediate calculations to 2 decimal places and final answers to 1 decimal place.) 8-b. Does it appear that investors have become more (or less) optimistic about Pinnacle's future success? More Optimistic Less Optimistic