Ratios from Comparative and Common-Size Data
Consider the following financial statements for Waverly Company.
During 2016, management obtained additional bond financing to enlarge its production facilities. The company faced higher production costs during the year for such things as fuel, materials, and freight. Because of temporary government price controls, a planned price increase on products was delayed several months.
As a holder of both common and preferred stock, you decide to analyze the financial statements:
WAVERLY COMPANY
Balance Sheets
(Thousands of Dollars)
Dec. 31, 2016
Dec. 31, 2015
Assets
Cash and cash equivalents
$19,000
$12,000
Accounts receivable (net)
$55,000
$43,000
Inventory
$120,000
$105,000
Prepaid expenses
$20,000
$14,000
Plant and other assets
(net)
$471,000
$411,000
Total Assets
$685,000
$585,000
Liabilities and Stockholders’ Equity
Current liabilities
$91,000
$82,000
10% Bonds payable
$225,000
$160,000
9% Preferred stock, $50 Par Value
$75,000
$75,000
Common stock, $10 Par Value
$200,000
$200,000
Retained earnings
$94,000
$68,000
Total Liabilities and Stockholders’ Equity
$685,000
$585,000
WAVERLY COMPANY
Income Statements
(Thousands of Dollars)
2016
2015
Sales revenue
$820,000
$678,000
Cost of goods sold
$545,000
$433,920
Gross profit on sales
$275,000
$244,080
Selling and administrative expenses
$175,000
$149,200
Income before interest expense and income taxes
$100,000
$94,880
Interest expense
$22,500
$16,000
Income before income taxes
$77,500
$78,880
Income tax expense
$22,900
$21,300
Net income
$54,600
$57,580
Other financial data (thousands of dollars)
Cash provided by operating activities
$65,200
$60,500
Preferred stock dividends
$6,750
$6,750
b. Calculate common-size percentages for each year’s income statement.
b. Round answers to one decimal place.
Common-Size Percentages
2016
2015
Sales revenue
Answer%
Answer%
Cost of goods sold
Answer%
Answer%
Gross profit on sales
Answer%
Answer%
Selling and administrative expenses
Answer%
Answer%
Income before interest expense and income taxes
Answer%
Answer%
Interest expense
Answer%
Answer%
Income before income taxes
Answer%
Answer%
Income tax expense
Answer%
Answer%
Net income
Answer%
Answer%