Option 1: Ratio Analysis Exercises and Problems
Use the net income statement for Summer Peebles, Inc., below, to do the following assigned problems.
- Compute the following earnings coverage ratios:
- Earnings to fixed charges.
- Cash flow to fixed charges.
- Earnings coverage of preferred dividends.
- Analyze and interpret the earnings coverage ratios in (A).
Sales |
$15,000.00 |
|
Undistributed Income of Less Than 50%-Owned Affiliates |
$300.00 |
|
Total Revenue |
$15,300.00 |
|
Cost of Goods Sold |
$7,000.00 |
|
Selling and Administrative Expenses |
$2,000.00 |
|
Depreciation |
$600.00 |
|
Rental Expense |
$500.00 |
|
Share of Minority Interest in Consolidated Income |
$200.00 |
|
Interest Expense |
$400.00 |
-$10,700.00 |
Income Before Taxes |
$4,600.00 |
|
Income Taxes |
||
Current |
$900.00 |
|
Deferred |
$400.00 |
-$1,300.00 |
Net Income |
$3,300.00 |
|
Less Dividends |
||
Common Stock |
$300.00 |
|
Preferred Stock |
$400.00 |
-$700.00 |
Earnings Retained for the Year |
$2,600.00 |
Additional Information:
- The following changes occurred in current assets and current liabilities for 2015:
Current Accounts Increase (Decrease) Current Accounts Increase (Decrease) Accounts Receivable $900.00 Notes Payable to Bank -$200.00 Inventories -$800.00 Accounts Payable $700.00 Dividend Payable -$100.00 - The effective tax rate is 40%.
- Shares of minority interests in consolidated income do not have fixed charges.
- Interest expenses include:
Interest Incurred (Except Items Below) $600.00 Amortization of Bond Premium -$300.00 Interest on Capitalized Leases $140.00 Interest Incurred $440.00 Less Interest Capitalized -$40.00 Interest Expense $400.00 - Amortization of previously capitalized interest (included in depreciation) is $60.
- Interest implicit in operating lease rental payment (included in rental expense) is $120.
Your submission should:
- Be 1-2 pages for the written portion.
- Include the Excel spreadsheet with computations.
- Clearly separate your responses so your instructor knows the problems you are answering.
- Follow the CSU-Global Guide to Writing and APA Requirements