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ACC 333 Lecture Notes - Lecture 18: Compound Annual Growth Rate, Market Price, Current Liability

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orangeminnow913
3 Jan 2018
School
Ryerson University
Department
Accounting
Course
ACC 333
Professor
Douglas Kong

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Document Summary

Ratio of revenue after cogs (sales - cogs) / sales. The amount you get back from net income for each dollar of investment (net profit / cost of investment) x 100 gain / original. Average increase in the value of an individual investment, portfolio, asset or cash stream over a specific interval of time. [ (new / old) ^ (1 / # of years ) ] - 1. The value of a company that is traded on the stock market. The amount of dividends paid to stockholders relative to the amount of total net income of a company. Indicates how much a company pays out in dividends each year relative to its share price. Dividends per share / market price per share. Shows ability of a business to pay for its current liabilities with its current assets. Used to measure financial leverage of a business.

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Related Questions

P14-3 Performratio analysis and evaluate financial position and operatingresults
Condensed balance sheet andincome statement data for Landwehr Corporation appear
below and on page 644.
LANDWEHR CORPORATION
Balance Sheets
December 31
2018 2017 2016
Cash 25,000 20,000 18,000
Accounts receivable (net) 50,000 45,000 48,000
Other current assets 90,000 95,000 64,000
Investments 75,000 70,000 45,000
Plant and equipment (net) 400,000 370,000 358,000
640,000 600,000 533,000
Current liabilities 75,000 80,000 70,000
Long-term debt 80,000 85,000 50,000
Common stock, $10 par 340,000 310,000 300,000
Retained earnings 145,000 125,000 113,000
640,000 600,000 533,000
LANDWEHR CORPORATION
Income Statement
For the Years Ended December 31
2018 2017
Sales revenue $740,000 $700,000
Less: Sales returns and allowances 40,000 50,000
Net sales 700,000 650,000
Cost of goods sold 420,000 400,000
Gross profit 280,000 250,000
Operating expenses (including income taxes) 235,000 220,000
Net income $45,000 $30,000
Additional information:
1. The market price of Landwehr's common stock was$4.00, $5.00, and $8.00 for
2016, 2017 and 2018,respectively.
2. All dividends are paid in cash.
After you have completedP14-3, consider the additional question.
1. Assume that that the net income for 2017 and theweighted average common shares outstanding changed to $38,000 and31,500 respectively.
Also assume that 2018 net sales and totalliabilities also changed to $680,000 and $160,000 respectively.Show the impact of these changes on

the Profit Margin, Asset Turnover, Earnings Per share,price-earnings ratio, payout ratio, and debt to assets ratio for2017 and 2018

(a) Profit margin: Profit margin:
Net income Value Net income Value
Net sales Value Net sales Value
Asset turnover: Asset turnover:
Net sales Value Net sales Value
Average total assets Value Average total assets Value
Earnings per share: Earnings per share:
Net income - Pfd. Dividends Value Net income - Pfd. Dividends Value
Weighted average common shares outstanding Value Weighted average common shares outstanding Value
Price-earnings ratio: Price-earnings ratio:
Market price per share Value Market price per share Value
Earnings per share Value Earnings per share Value
Payout ratio: Payout ratio:
Cash dividends declared on common Value Cash dividends declared on common Value
Net income Value Net income Value
Debt to assets ratio: Debt to assets ratio:
Total liabilities Value Total liabilities Value
Total assets Value Total assets Value
P14-3 Performratio analysis and evaluate financial position and operatingresults
Condensed balance sheet andincome statement data for Landwehr Corporation appear
below and on page 644.
LANDWEHR CORPORATION
Balance Sheets
December 31
2018 2017 2016
Cash 25,000 20,000 18,000
Accounts receivable (net) 50,000 45,000 48,000
Other current assets 90,000 95,000 64,000
Investments 75,000 70,000 45,000
Plant and equipment (net) 400,000 370,000 358,000
640,000 600,000 533,000
Current liabilities 75,000 80,000 70,000
Long-term debt 80,000 85,000 50,000
Common stock, $10 par 340,000 310,000 300,000
Retained earnings 145,000 125,000 113,000
640,000 600,000 533,000
LANDWEHR CORPORATION
Income Statement
For the Years Ended December 31
2018 2017
Sales revenue $740,000 $700,000
Less: Sales returns and allowances 40,000 50,000
Net sales 700,000 650,000
Cost of goods sold 420,000 400,000
Gross profit 280,000 250,000
Operating expenses (including income taxes) 235,000 220,000
Net income $45,000 $30,000
Additional information:
1. The market price of Landwehr's common stock was$4.00, $5.00, and $8.00 for
2016, 2017 and 2018,respectively.
2. All dividends are paid in cash.
Instructions
(a) Compute the following ratios for 2017 and2018.
(1) Profit margin.
(2) Asset turnover.
(3) Earnings per share (Weighted-average commonshares in 2018 were 32,000 and
in 2017 were31,000.)
(4) Price-earnings ratio.
(5) Payout ratio.
(6) Debt to assets ratio.
(b) Based on the ratios calculated, discuss briefly theimprovement or lack thereof in
financial position and operating results from 2017to 2018 of Landwehr Corporation.
NOTE: Enter a number in cellsrequesting a value; enter either a number or a formula in cellswith a "?" .
2017 2018
(a) Profit margin: Profit margin:
Net income Value Net income Value
Net sales Value Net sales Value
Asset turnover: Asset turnover:
Net sales Value Net sales Value
Average total assets Value Average total assets Value
Earnings per share: Earnings per share:
Net income - Pfd. Dividends Value Net income - Pfd. Dividends Value
Weighted average common shares outstanding Value Weighted average common shares outstanding Value
Price-earnings ratio: Price-earnings ratio:
Market price per share Value Market price per share Value
Earnings per share Value Earnings per share Value
Payout ratio: Payout ratio:
Cash dividends declared on common Value Cash dividends declared on common Value
Net income Value Net income Value
Debt to assets ratio: Debt to assets ratio:
Total liabilities Value Total liabilities Value
Total assets Value Total assets Value
(b) Based on the ratios calculated, discuss briefly theimprovement or lack thereof in financial position and operatingresults
from 2017 to 2018 of Landwehr Corporation.

EXERCISE 11-10 Cost-Volume-Profit Analysis and Return on Investment (ROI) (L011-1] Posters.com is a small Internet retailer of high-quality posters. The company has $1,000,000 in operating assets and fixed expenses of $150,000 per year. With this level of operating assets and fixed expenses, the company can support sales of up to $3,000,000 per year. The company's con- tribution margin ratio is 25%, which means that an additional dollar of sales results in additional contribution margin, and net operating income, of 25 cents. Required: 1. Complete the following table showing the relation between sales and return on investment (ROI). Net Operating Income Sales 0 $2,500,000 $2,600,000 $2,700,000 $2,800,000 $2,900,000 $3,000,000 $475,000 $ ? $ ? $ ? Average Operating Assets $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 - 2. What happens to the company's return on investment (ROI) as sales increase? Explain.