Answer:
Jergen Corporation
2019 2020
(1) Profit margin Ratios: 13% 10%
(2) Gross profit rate 39.2% 35.7%
(3) Asset turnover 1.06 1.02
(4) Earnings per share $2.63 $1.80
(5) Price-earnings ratio = 3.2x 4.2x
(6) Payout ratio = 62% 76%
(7) Debt to assets ratio = 32% 28%
Explanation:
a) Data and Calculations:
Jergan Corporation
Balance Sheets
December 31
2020 2019 2018
Cash $ 29,300 $ 17,300 $ 17,000
Accounts receivable (net) 49,900 44,100 47,800
Other current assets 90,900 96,000 63,900
Investments 55,200 70,200 45,600
Plant and equipment (net) 500,700 370,600 358,000
$726,000 $598,200 $532,300
Current liabilities $84,800 $79,100 $70,300
Long-term debt 145,700 85,900 50,800
Total debt $230,500 $165,000 $121,100
Common stock, $10 par 348,000 320,000 312,000
Retained earnings 147,500 113,200 99,200
$726,000 $598,200 $532,300
Jergan Corporation
Income Statement
For the Years Ended December 31
2020 2019
Sales revenue $743,000 $606,900
Less: Sales returns and allowances 40,000 29,500
Net sales 703,000 577,400
Cost of goods sold 427,400 371,500
Gross profit 275,600 205,900
Operating expenses
(including income taxes) 184,210 148,160
Net income $ 91,390 $ 57,740
2020 2019 2018
Market price of common stock $8.50 $7.50 $7.00
2020 2019 2018
Retained earnings 147,500 113,200 99,200
Net income $ 91,390 $ 57,740
Dividend paid $57,090 $43,740
Outstanding shares 34,800 32,000
Dividend per share $1.64 $1.37
Average Assets: $662,100 $565,250
($726,000 + $598,200)/2 ($598,200 + $532,300)/2
a) Ratios:
2019 2020
(1) Profit margin Ratios: 13% ($91,390/$703,000) 10% ($57,740/$577,400)
(2) Gross profit rate 39.2% 35.7%
($275,600/$703,000) ($205,900/$577,400)
(3) Asset turnover 1.06 1.02
$703,000/$662,100 $577,400/$565,250
(4) Earnings per share $2.63 ($ 91,390/34,800) $1.80 ($57,740/32,000)
(5) Price-earnings ratio = 3.2 ($8.50/$2.63) 4.2 ($7.50/$1.80)
(6) Payout ratio = 62% ($1.64/$2.63) 76% ($1.37/$1.80)
(7) Debt to assets ratio = 32% 28%
($230,500/$726,000) ($165,000/$598,200)