Pinnacle Plus declared and paid a cash dividend of $8,400 in thecurrent year. Its comparative financial statements, prepared atDecember 31, reported the following summarized information:
| Current Year | | Previous Year |
| Income Statement | | | | | | | |
| Sales Revenue | $ | 200,000 | | | $ | 171,000 | |
| Cost of Goods Sold | | 88,000 | | | | 84,000 | |
| Gross Profit | | 112,000 | | | | 87,000 | |
| Operating Expenses | | 54,000 | | | | 47,400 | |
| Interest Expense | | 5,800 | | | | 5,800 | |
| Income before Income Tax Expense | | 52,200 | | | | 33,800 | |
| Income Tax Expense (30%) | | 15,660 | | | | 10,140 | |
| Net Income | $ | 36,540 | | | $ | 23,660 | |
| Balance Sheet | | | | | | | |
| Cash | $ | 92,990 | | | $ | 20,000 | |
| Accounts Receivable, Net | | 35,000 | | | | 30,000 | |
| Inventory | | 43,000 | | | | 56,000 | |
| Property and Equipment, Net | | 113,000 | | | | 123,000 | |
| Total Assets | $ | 283,990 | | | $ | 229,000 | |
| Accounts Payable | $ | 60,000 | | | $ | 33,200 | |
| Income Tax Payable | | 1,450 | | | | 1,400 | |
| Note Payable (long-term) | | 58,000 | | | | 58,000 | |
| Total Liabilities | | 119,450 | | | | 92,600 | |
| Common Stock (par $10) | | 100,800 | | | | 100,800 | |
| Retained Earnings | | 63,740 | | | | 35,600 | |
| Total Liabilities and Stockholders’Equity | $ | 283,990 | | | $ | 229,000 | |
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Required:
- Compute the gross profit percentage in the current and previousyears. Are the current year results better, or worse, than thosefor the previous year?
- Compute the net profit margin for the current and previousyears. Are the current year results better, or worse, than thosefor the previous year?
- Compute the earnings per share for the current and previousyears. Are the current year results better, or worse, than thosefor the previous year?
- Stockholders’ equity totaled $118,000 at the beginning of theprevious year. Compute the return on equity (ROE) ratios for thecurrent and previous years. Are the current year results better, orworse, than those for the previous year?
- Net property and equipment totaled $128,000 at the beginning ofthe previous year. Compute the fixed asset turnover ratios for thecurrent and previous years. Are the current year results better, orworse, than those for the previous year?
- Compute the debt-to-assets ratios for the current and previousyears. Is debt providing financing for a larger or smallerproportion of the company’s asset growth?
- Compute the times interest earned ratios for the current andprevious years. Are the current year results better, or worse, thanthose for the previous year?
- After Pinnacle Plus released its current year’s financialstatements, the company’s stock was trading at $36. After therelease of its previous year’s financial statements, the company’sstock price was $33 per share. Compute the P/E ratios for bothyears. Does it appear that investors have become more (or less)optimistic about Pinnacle’s future success?
