Question - (Financial statement analysis) Lopez Electronics' management has long viewed TKO Electronics as an industry leader and uses this firm as a model firm for analyzing its own performance. The balance sheets and income statements for the two firms are as follows:
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Lopez Electronics, Inc. Balance Sheet ($000)
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TKO Electronics, Inc. Balance Sheet ($000)
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Cash
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$2,000
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$1,500
|
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Accounts receivable
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4,500
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6,000
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Inventories
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1,500
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2,500
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Current assets
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$8,000
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$10,000
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Net fixed assets
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16,000
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25,000
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Total assets
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$24,000
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$35,000
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Accounts payable
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$2,500
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$5,000
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Accrued expenses
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1,000
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1,500
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Short-term notes payable
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3,500
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1,500
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Current liabilities
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$7,000
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$8,000
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Long-term debt
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8,000
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4,000
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Owners' equity
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9,000
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23,000
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Total liabilities and owners' equity
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$24,000
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$35,000
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Lopez Electronics, Inc. Income Statement ($000)
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TKO Electronics, Inc. Income Statement ($000)
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Net sales (all credit)
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$48,000
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$70,000
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Cost of goods sold
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-36,000
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-42,000
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Gross profit
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$12,000
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$28,000
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Operating expenses
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-8,000
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-12,000
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Net operating income
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$4,000
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$16,000
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Interest expense
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-1,150
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-550
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Earnings before taxes
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2,850
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15,450
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Income taxes (40%)
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-1,140
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-6,180
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Net income
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$1,710
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$9,270
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1. Calculate the following ratios for both Lopez and TKO:
Current ratio
Times interest earned
Inventory turnover
Total asset turnover
Operating profit margin
Operating return on assets
Debt ratio
Average collection period
Fixed asset turnover
Return on equity