“How Well Am I Doing?

”
Financial Statement
Analysis

Instructor
masum
Bangladesh University of Textiles

How Well Am I Doing

TOOLS OF FINANCIAL
STATEMENT ANALYSIS

Three commonly used tools are utilized to evaluate

the significance of financial statement data.
1) Horizontal analysis (trend analysis) evaluates a
series of financial statement data over a period of
time.
2) Vertical analysis evaluates financial statement data
expressing each item in a financial statement as a
percent of a base amount.
3) Ratio analysis expresses the relationship among
selected items of financial statement data.

Learning Objective 1
Statements in Comparative and Common-
Size Form

Dollar and Percentage Changes on

Statements

Horizontal analysis (or trend analysis) shows

the changes between years in the financial
data in both and form.
 Horizontal Analysis

The following slides illustrate a horizontal

analysis of Clover Corporation’s
December 31, 2007 and 2006, comparative
balance sheets and comparative
income statements.

Horizontal Analysis

CLOVER CORPORATION
Comparative Balance Sheets
December 31

Increase (Decrease)
2007 2006 Amount %
Assets
Current assets:
Cash $ 12,000 $ 23,500
Accounts receivable, net 60,000 40,000
Inventory 80,000 100,000
Prepaid expenses 3,000 1,200
Total current assets 155,000 164,700
Property and equipment:
Land 40,000 40,000
Buildings and equipment, net 120,000 85,000
Total property and equipment 160,000 125,000
Total assets $ 315,000 $ 289,700
 Horizontal Analysis

Calculating Change in Dollar Amounts

Dollar Current Year Base Year

= –
Change Figure Figure

The dollar
amounts for
2006 become
the “base” year
figures.

Horizontal Analysis

Percentage Dollar Change

Change
=
Base Year Figure × 100%
 Horizontal Analysis

CLOVER CORPORATION
Comparative Balance Sheets
December 31

Increase (Decrease)
2007 2006 Amount %
Assets
Current assets:
Cash $ 12,000 $ 23,500 $ (11,500) (48.9)
Accounts receivable, net 60,000 40,000
Inventory 80,000 100,000
Prepaid expenses 3,000 1,200
Total current assets $12,000 – $23,500 = $(11,500)
155,000 164,700
Property and equipment:
Land 40,000 40,000
($11,500
Buildings and equipment, net ÷ $23,500)
120,000 × 100% = 48.9%
85,000
Total property and equipment 160,000 125,000
Total assets $ 315,000 $ 289,700

Horizontal Analysis

CLOVER CORPORATION
Comparative Balance Sheets
December 31

Increase (Decrease)
2007 2006 Amount %
Assets
Current assets:
Cash $ 12,000 $ 23,500 $ (11,500) (48.9)
Accounts receivable, net 60,000 40,000 20,000 50.0
Inventory 80,000 100,000 (20,000) (20.0)
Prepaid expenses 3,000 1,200 1,800 150.0
Total current assets 155,000 164,700 (9,700) (5.9)
Property and equipment:
Land 40,000 40,000 - 0.0
Buildings and equipment, net 120,000 85,000 35,000 41.2
Total property and equipment 160,000 125,000 35,000 28.0
Total assets $ 315,000 $ 289,700 $ 25,300 8.7
 Horizontal Analysis

We could do this for the liabilities

& stockholders’ equity, but now
let’s look at the income statement
accounts.

Horizontal Analysis

CLOVER CORPORATION
Comparative Income Statements
For the Years Ended December 31
Increase
(Decrease)
2007 2006 Amount %
Sales $ 520,000 $ 480,000
Cost of goods sold 360,000 315,000
Gross margin 160,000 165,000
Operating expenses 128,600 126,000
Net operating income 31,400 39,000
Interest expense 6,400 7,000
Net income before taxes 25,000 32,000
Less income taxes (30%) 7,500 9,600
Net income $ 17,500 $ 22,400
 Horizontal Analysis

CLOVER CORPORATION
Comparative Income Statements
For the Years Ended December 31
Increase
(Decrease)
2007 2006 Amount %
Sales $ 520,000 $ 480,000 $ 40,000 8.3
Cost of goods sold 360,000 315,000 45,000 14.3
Gross margin 160,000 165,000 (5,000) (3.0)
Operating expenses 128,600 126,000 2,600 2.1
Net operating income 31,400 39,000 (7,600) (19.5)
Interest expense 6,400 7,000 (600) (8.6)
Net income before taxes 25,000 32,000 (7,000) (21.9)
Less income taxes (30%) 7,500 9,600 (2,100) (21.9)
Net income $ 17,500 $ 22,400 $ (4,900) (21.9)

Horizontal Analysis

CLOVER CORPORATION
Comparative Income Statements
For the Years Ended December 31
Increase
(Decrease)
2007 2006 Amount %
Sales $ 520,000 $ 480,000 $ 40,000 8.3
Cost of goods sold 360,000 315,000 45,000 14.3
Gross margin
Sales increased 160,000 165,000
by 8.3%, yet (5,000) (3.0)
Operating expenses 128,600 126,000 2,600 2.1
net income decreased by 21.9%.
Net operating income 31,400 39,000 (7,600) (19.5)
Interest expense 6,400 7,000 (600) (8.6)
Net income before taxes 25,000 32,000 (7,000) (21.9)
Less income taxes (30%) 7,500 9,600 (2,100) (21.9)
Net income $ 17,500 $ 22,400 $ (4,900) (21.9)
 Horizontal Analysis

There were increases in both

CLOVER cost of goods
CORPORATION
Comparative
sold (14.3%) and operatingIncome Statements
expenses (2.1%).
For the Years Ended December 31
These increased costs more than offset the
Increase
increase in sales, yielding an overall
(Decrease)
decrease in net income.
2007 2006 Amount %
Sales $ 520,000 $ 480,000 $ 40,000 8.3
Cost of goods sold 360,000 315,000 45,000 14.3
Gross margin 160,000 165,000 (5,000) (3.0)
Operating expenses 128,600 126,000 2,600 2.1
Net operating income 31,400 39,000 (7,600) (19.5)
Interest expense 6,400 7,000 (600) (8.6)
Net income before taxes 25,000 32,000 (7,000) (21.9)
Less income taxes (30%) 7,500 9,600 (2,100) (21.9)
Net income $ 17,500 $ 22,400 $ (4,900) (21.9)

Trend Percentages
 Trend Analysis

Trend = Current Year Amount

× 100%
Percentage Base Year Amount

Trend Analysis

Example

Look at the income information for Berry

Products for the years 2003 through 2007.
We will do a trend analysis on these
amounts to see what we can learn
about the company.
 Trend Analysis

Berry Products
Income Information
For the Years Ended December 31
Year
Item 2007 2006 2005 2004 2003
Sales $ 400,000 $ 355,000 $ 320,000 $ 290,000 $ 275,000
Cost of goods sold 285,000 250,000 225,000 198,000 190,000
Gross margin 115,000 105,000 95,000 92,000 85,000

The base
year is 2003, and its amounts
will equal 100%.

Trend Analysis

Berry Products
Income Information
For the Years Ended December 31
Year
Item 2007 2006 2005 2004 2003
Sales 105% 100%
Cost of goods sold 104% 100%
Gross margin 108% 100%

2004 Amount ÷ 2003 Amount × 100%

( $290,000 ÷ $275,000 ) × 100% = 105%
( $198,000 ÷ $190,000 ) × 100% = 104%
( $ 92,000 ÷ $ 85,000 ) × 100% = 108%
 Trend Analysis

Berry Products
Income Information
For the Years Ended December 31
Year
Item 2007 2006 2005 2004 2003
Sales 145% 129% 116% 105% 100%
Cost of goods sold 150% 132% 118% 104% 100%
Gross margin 135% 124% 112% 108% 100%

By analyzing the trends for Berry Products, we

can see that cost of goods sold is increasing
faster than sales, which is slowing the increase
in gross margin.

Trend Analysis

We can use the trend

160 percentages to construct a
graph so we can see the
150
trend over time.
140
Percentage

130

120 Sales
COGS
110 GM
100
2003 2004 2005 2006 2007
Year
 Common-Size Statements

Vertical analysis focuses

on the relationships
among financial statement
items at a given point in
time. A common-size
financial statement is a
vertical analysis in which
each financial statement
item is expressed as a
percentage.

Common-Size Statements

In income
statements, all
items usually
are expressed
as a percentage
of sales.
Gross Margin Percentage

Gross Margin = Gross Margin

Percentage Sales

This measure indicates how much

of each sales dollar is left after
deducting the cost of goods sold to
cover expenses and provide a profit.

Common-Size Statements

In balance
sheets, all items
usually are
expressed as a
percentage of
total assets.
 Common-Size Statements

Wendy's McDonald's
(dollars in millions) Dollars Percentage Dollars Percentage
2002 Net income $ 219 8.00% $ 893 5.80%

Common-size financial statements are

particularly useful when comparing
data from different companies.

Common-Size Statements

Example

Let’s take another look at the information

from the comparative income statements
of Clover Corporation for 2007 and 2006.
 Common-Size Statements

CLOVER CORPORATION
Comparative Income Statements
For the Years Ended December 31
Common-Size
Percentages
2007 2006 2007 2006
Sales $ 520,000 $ 480,000 100.0 100.0
Cost of goods sold 360,000 315,000
Gross margin 160,000 165,000 is
Operating expenses 128,600 126,000 usually the
Net operating income 31,400 39,000 base and is
Interest expense 6,400 7,000 expressed
Net income before taxes 25,000 32,000 as 100%.
Less income taxes (30%) 7,500 9,600
Net income $ 17,500 $ 22,400

Common-Size Statements

CLOVER CORPORATION
Comparative Income Statements
For the Years Ended December 31
Common-Size
Percentages
2007 2006 2007 2006
Sales $ 520,000 $ 480,000 100.0 100.0
Cost of goods sold 360,000 315,000 69.2 65.6
Gross margin 160,000 165,000
Operating expenses 128,600 126,000
2007 Cost ÷ 2007 Sales × 100%
Net operating income 31,400 39,000
( $360,000 ÷ $520,000 ) × 100% = 69.2%
Interest expense 6,400 7,000
Net income before taxes
2006 Cost ÷25,000 32,000
2006 Sales × 100%
Less income taxes (30%) 7,500 9,600
( $315,000 ÷ $480,000 ) × 100% = 65.6%
Net income $ 17,500 $ 22,400
 Common-Size Statements

CLOVER CORPORATION
Comparative Income Statements
For the Years Ended December 31
Common-Size
What conclusions can we draw? Percentages
2007 2006 2007 2006
Sales $ 520,000 $ 480,000 100.0 100.0
Cost of goods sold 360,000 315,000 69.2 65.6
Gross margin 160,000 165,000 30.8 34.4
Operating expenses 128,600 126,000 24.8 26.2
Net operating income 31,400 39,000 6.0 8.2
Interest expense 6,400 7,000 1.2 1.5
Net income before taxes 25,000 32,000 4.8 6.7
Less income taxes (30%) 7,500 9,600 1.4 2.0
Net income $ 17,500 $ 22,400 3.4 4.7

Quick Check 

Which of the following statements describes

horizontal analysis?
a. A statement that shows items appearing
on it in percentage and dollar form.
b. A side-by-side comparison of two or
more years’ financial statements.
c. A comparison of the account balances on
the current year’s financial statements.
d. None of the above.
 Quick Check 

Which of the following statements describes

horizontal analysis?
a. A statement that shows items appearing
on it in percentage and dollar form.
b. A side-by-side comparison of two or
more years’ financial statements.
c. A comparison of the account balances on
Horizontal
the current analysis shows the
year’s financial changes
statements.
between years in the financial data in both
d. None of the above.
dollar and percentage form.

RATIO ANALYSIS

• Ratio analysis expresses the relationship

among selected items of financial statement
data.
• A ratio expresses the mathematical
relationship between one quantity and
another.
• A single ratio by itself is not very meaningful,
in the upcoming illustrations we will use:
1) Intracompany comparisons
2) Industry average comparisons
3) Intercompany comparisons
 Key Financial Ratios
LIQUIDITY RATIOS
Current Ratio = Current Assets/Current Liabilities
Quick (Acid Test) Ratio = (Current Assets – Inventories)/Current Liabilities
Working Capital Percentage = (Current Assets-Current Liabilities)/Net Sales

LEVERAGE RATIOS
Debt to Assets Ratio = Total Liabilities/Total Assets
Debt to Equity Ratio = Total Liabilities/Total Equity
Times Interest Earned = Operating Income/Interest Expense

ACTIVITY RATIOS
Accounts Receivable Turnover = Credit Sales/Accounts Receivable
Average Collection Period = (Accounts Receivable x 365)/Net Sales
Inventory Turnover = Cost of Goods Sold/Finished Goods Inventory
Asset Turnover = Net Sales/Total Assets

PROFITABILITY RATIOS
Return on Assets = Operating Income/Total Assets
Return on Equity = Net Income/Total Equity
Net Profit Margin = Net Income/Net Sales

Learning Objective 2
 Now, let’s look at
Norton
Corporation’s
2007 and 2006
financial
statements.

NORTON CORPORATION
Balance Sheets
December 31

2007 2006
Assets
Current assets:
Cash $ 30,000 $ 20,000
Accounts receivable, net 20,000 17,000
Inventory 12,000 10,000
Prepaid expenses 3,000 2,000
Total current assets 65,000 49,000
Property and equipment:
Land 165,000 123,000
Buildings and equipment, net 116,390 128,000
Total property and equipment 281,390 251,000
Total assets $ 346,390 $ 300,000
 NORTON CORPORATION
Balance Sheets
December 31

2007 2006
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 39,000 $ 40,000
Notes payable, short-term 3,000 2,000
Total current liabilities 42,000 42,000
Long-term liabilities:
Notes payable, long-term 70,000 78,000
Total liabilities 112,000 120,000
Stockholders' equity:
Common stock, $1 par value 27,400 17,000
Additional paid-in capital 158,100 113,000
Total paid-in capital 185,500 130,000
Retained earnings 48,890 50,000
Total stockholders' equity 234,390 180,000

Total liabilities and stockholders' equity $ 346,390 $ 300,000

NORTON CORPORATION
Income Statements
For the Years Ended December 31

2007 2006
Sales $ 494,000 $ 450,000
Cost of goods sold 140,000 127,000
Gross margin 354,000 323,000
Operating expenses 270,000 249,000
Net operating income 84,000 74,000
Interest expense 7,300 8,000
Net income before taxes 76,700 66,000
Less income taxes (30%) 23,010 19,800
Net income $ 53,690 $ 46,200
Ratio Analysis – The Common Stockholder

NORTON CORPORATION
2007
Number of common shares
outstanding
Beginning of year 17,000
End of year 27,400
Net income $ 53,690
Stockholders' equity
Beginning of year 180,000
End of year 234,390
Dividends per share 2
Dec. 31 market price per share 20
Interest expense 7,300
Total assets
Beginning of year 300,000
End of year 346,390

Earnings Per Share

Net Income – Preferred Dividends

Earnings per Share =
Average Number of Common
Shares Outstanding

Whenever a ratio divides an income statement

balance by a balance sheet balance, the average
for the year is used in the denominator.

Earnings form the basis for dividend payments

and future increases in the value of shares of
stock.
 Earnings Per Share

Net Income – Preferred Dividends

Earnings per Share =
Average Number of Common
Shares Outstanding

Earnings per Share = $53,690 – $0 = $2.42

($17,000 + $27,400)/2

This measure indicates how much

income was earned for each share of
common stock outstanding.

Price-Earnings Ratio

Price-Earnings Market Price Per Share

=
Ratio Earnings Per Share

Price-Earnings $20.00
= = 8.26 times
Ratio $2.42

A higher price-earnings ratio means that

investors are willing to pay a premium
for a company’s stock because of
optimistic future growth prospects.
 Dividend Payout Ratio

Dividend Dividends Per Share

=
Payout Ratio Earnings Per Share

Dividend $2.00
= = 82.6%
Payout Ratio $2.42

This ratio gauges the portion of current

earnings being paid out in dividends. Investors
seeking dividends (market price growth) would
like this ratio to be large (small).

Dividend Yield Ratio

Dividend Dividends Per Share

=
Yield Ratio Market Price Per Share

Dividend $2.00
= = 10.00%
Yield Ratio $20.00

This ratio identifies the return, in terms

of cash dividends, on the current
market price of the stock.
Fixed Assets and Total Assets Turnover
Ratios vs. the Industry Average

FA turnover = Sales/Net fixed assets

= $7,036/$817 = 8.61x

TA turnover = Sales/Total assets

= $7,036/$3,497 = 2.01x

4-49

Profitability Ratios: Return on Assets and

Return on Equity

ROA= Net income/Total assets

= $253.6/$3,497 = 7.3%

ROE= Net income/Total common equity

= $253.6/$1,952 = 13.0%

4-50
 Evaluating the FA Turnover and TA
Turnover Ratios

2009E 2008 2007 Ind.

FA TO 8.6x 6.4x 10.0x 7.0x
TA TO 2.0x 2.1x 2.3x 2.6x

 FA turnover projected to exceed the

industry average.
 TA turnover below the industry average.
Caused by excessive currents assets

4-51

Return on Common Stockholders’ Equity

Return on Common Net Income – Preferred Dividends

=
Stockholders’ Equity Average Stockholders’ Equity

Return on Common $53,690 – $0

= = 25.91%
Stockholders’ Equity ($180,000 + $234,390) ÷ 2

This measure indicates how well the

company used the owners’
investments to earn income.
The DuPont System

ROE Profit  Total assets  Equity

margin turnover multiplier

ROE (NI/Sales)  (Sales/TA)  (TA/Equity )

 Focuses on expense control (PM), asset

utilization (TA TO), and debt utilization
(equity multiplier).

4-53

ROE

ROA Equity Multiplier

Profit Margin Total Asset Turnover

54
 ROE

ROA Equity Multiplier

Profit Margin Total Asset Turnover

ROE  ROA  Equity Multiplier

Net Income Total Assets
 
Total Assets Common Equity
55

ROE

ROA Equity Multiplier

Profit Margin Total Asset Turnover

ROA  Profit Margin  Total Asset Turnover

Net Income Sales
 
Sales Total Assets
56
 ROE

ROA Equity Multiplier

Profit Margin Total Asset Turnover

ROE  Profit Margin  Total Asset Turnover  Equity Multiplier

Net Income Sales Total Assets
  
Sales Total Assets Common Equity
57

DuPont Equation:
Breaking Down Return on Equity

ROE = (NI/Sales) x (Sales/TA) x (TA/Equity)

= 3.6% x 2 x 1.8
= 13.0%

PM TA TO EM ROE
2007 2.6% 2.3 2.2 13.3%
2008 -2.7% 2.1 5.8 -32.5%
2009E 3.6% 2.0 1.8 13.0%
Ind. 3.5% 2.6 2.0 18.2%
4-58
 Financial Leverage

Fixed rate of
Return on return on Positive
investment in > borrowed = financial
assets funds leverage

Return on Fixed rate of Negative

investment in < return on = financial
assets borrowed leverage
funds

Quick Check 

Which of the following statements is true?

a. Negative financial leverage is when the
fixed return to a company’s creditors and
preferred stockholders is greater than the
return on total assets.
b. Positive financial leverage is when the
fixed return to a company’s creditors and
preferred stockholders is greater than the
return on total assets.
c. Financial leverage is the expression of
several years’ financial data in
percentage form in terms of a base year.
 Quick Check 

Which of the following statements is true?

a. Negative financial leverage is when the
fixed return to a company’s creditors and
preferred stockholders is greater than the
return on total assets.
b. Positive financial leverage is when the
fixed return to a company’s creditors and
preferred stockholders is greater than the
return on total assets.
c. Financial leverage is the expression of
several years’ financial data in
percentage form in terms of a base year.

Book Value Per Share

Book Value Common Stockholders’ Equity

=
per Share Number of Common Shares Outstanding

Book Value $234,390

= = $ 8.55
per Share 27,400

This ratio measures the amount that would be

distributed to holders of each share of common
stock if all assets were sold at their balance sheet
carrying amounts after all creditors were paid off.
 Book Value Per Share

Book Value Common Stockholders’ Equity

=
per Share Number of Common Shares Outstanding

Book Value $234,390

= = $ 8.55
per Share 27,400

Notice that the book value per share of $8.55 does

not equal the market value per share of $20. This
is because the market price reflects expectations
about future earnings and dividends, whereas the
book value per share is based on historical cost.

Learning Objective 3
Ratio Analysis – The Short–Term Creditor

NORTON CORPORATION
2007
Cash $ 30,000
Accounts receivable, net
Beginning of year 17,000
End of year 20,000
Inventory
Beginning of year 10,000
End of year 12,000
Total current assets 65,000
Total current liabilities 42,000
Sales on account 494,000
Cost of goods sold 140,000

Working Capital

The excess of current assets over

current liabilities is known as net
working capital.

Working capital is not

free. It must be
financed with /short
term or long-term debt
and equity.
 Working Capital

December 31,
2007
Current assets $ 65,000
Current liabilities (42,000)
Net Working capital $ 23,000

Current Ratio

Current Current Assets

=
Ratio Current Liabilities

The current ratio measures a

company’s short-term debt paying
ability.

A declining ratio may be a

sign of deteriorating
financial condition, or it
might result from eliminating
obsolete inventories.
 Current Ratio

Current Current Assets

=
Ratio Current Liabilities

Current $65,000
= = 1.55
Ratio $42,000

Acid-Test (Quick) Ratio

Acid-Test Quick Assets

=
Ratio Current Liabilities

Acid-Test $50,000
= = 1.19
Ratio $42,000

Quick assets include Cash,

Marketable Securities, Accounts Receivable and
current Notes Receivable.
This ratio measures a company’s ability to meet
obligations without having to liquidate inventory.
 RECEIVABLES TURNOVER

• The receivables turnover ratio is used to assess the

liquidity of the receivables.
• It measures the number of times, on average,
receivables are collected during the period.
• The ratio is computed by dividing net credit sales
by average net receivables.

NET CREDIT SALES

RECEIVABLES TURNOVER = ———————————————
AVERAGE NET
RECEIVABLES

Accounts Receivable Turnover

Accounts
Sales on Account
Receivable =
Average Accounts Receivable
Turnover

Accounts
$494,000
Receivable = = 26.7 times
($17,000 + $20,000) ÷ 2
Turnover

This ratio measures how many

times a company converts its
receivables into cash each year.
 Average Collection Period

Average 365 Days

Collection = Accounts Receivable Turnover
Period

Average
365 Days
Collection = = 13.67 days
26.7 Times
Period

This ratio measures, on average,

how many days it takes to collect
an account receivable.

Inventory Turnover

Inventory Cost of Goods Sold

Turnover = Average Inventory
 Inventory Turnover

Inventory Cost of Goods Sold

=
Turnover Average Inventory

Inventory $140,000
= = 12.73 times
Turnover ($10,000 + $12,000) ÷ 2

Average Sale Period

Average 365 Days

=
Sale Period Inventory Turnover

Average 365 Days

= = 28.67 days
Sale Period 12.73 Times

This ratio measures how many

days, on average, it takes to sell
the inventory.
 Learning Objective 4

Ratio Analysis – The Long–Term Creditor

Long-term creditors are concerned with

a company’s ability to repay its loans
over the long-run.

NORTON CORPORATION
2007
Earnings before interest
expense and income taxes $ 84,000
Interest expense 7,300

This is also referred Total stockholders' equity 234,390

to as net operating Total liabilities 112,000

income.
Times Interest Earned Ratio

Earnings before Interest Expense

Times and Income Taxes
Interest = Interest Expense
Earned

Times
$84,000
Interest = = 11.51 times
$7,300
Earned
This is the most common
measure of a company’s ability
to provide protection for its long-
term creditors. A ratio of less
than 1.0 is inadequate.

Debt-to-Equity Ratio

Debt–to–
Total Liabilities
Equity =
Stockholders’ Equity
Ratio
 Debt-to-Equity Ratio

Debt–to–
Total Liabilities
Equity =
Stockholders’ Equity
Ratio

Debt–to–
$112,000
Equity = = 0.48
$234,390
Ratio

Limitations of Financial Statement Analysis

Differences in accounting methods between

companies sometimes make comparisons
difficult.

We use the LIFO method to We use the average cost

value inventory. method to value inventory.
Limitations of Financial Statement Analysis

Changes within
the company
Industry Consumer
trends tastes

Technological
changes
Economic
factors

Analysts should look beyond

the ratios.

Balance Sheet
(in millions)
Assets 2002 2001
Current assets
Cash and cash equivalents $ 546.9 $ 346.7
Accounts receivable (net) 624.8 580.6
Inventories 544.5 630.3
Prepaid expenses and other current assets 211.4 181.3
Total current assets 1,927.6 1,738.9
Property, plant, and equipment (net)
Investments
Intangibles and other assets
580.7
30.3
877.9
528.7
41.0
910.2
S
Total assets $ 3,416.5 $ 3,218.8
o
l
Liabilities and Stockholders' equity
Current liabilities $ 959.6 $ 856.7
Long-term liabilities 635.0 650.0

u
Stockholders' equity - common 1,821.9 1,712.1
Total liabilities and stockholders' equity $ 3,416.5 $ 3,218.8

t
Income Statement
2002 2001
Revenues $ 4,751.5 $ 4,682.1
Costs and expenses
Cost of goods sold
Selling and administrative expenses
1,273.4
3,133.6
1,226.4
2,947.6
i
Interest expense
Total costs and expenses
Income before income taxes
17.6
4,424.6
326.9
26.7
4,200.7
481.4
o
Income tax expense
Net income
114.4
$ 212.5
174.0
$ 307.4 n
Instructions
Compute the following ratios for 2002 and 2001.
s
(a) Current ratio.
(b) Inventory trunover. (Inventory on 6/30/00 was $546.3.)
(c) Profit margin ratio.
(d) Return on assets. (Assets on 6/30/00 were $3,043.3.)
(e) Return on common stockholders' equity. (Equity on 6/30/00 was $1,520.3
(f) Debt to total assets ratio.
(g) Times interest earned.