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P14-3  Condensed balance sheet and income statement data for Kersenbrock Corporation appear below

KERSENBROCK CORPORATION

Balance Sheets

December 31

2012                2011             2010

Cash                                               \$  25,000          \$   20,000           \$  18,000

Receivables(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 earning                                                                145,000     125,000    113,000

\$640,000    \$600,000    \$533,000

KERSENBROCK CORPORATION

Income Statements

For the Years Ended December 31

2012         2011

Sales    \$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

1.  The market price of Kersenbrock’s common stock was \$4.00, \$5,00, and \$8.00 for 2010,2011, and 2012, respectively.

2.  All dividends were paid in cash.

Instructions

(a)  Compute the following ratios for 2011 and 2012

(1)  Profit margin.

(2)  Asset turnover.

(3)  Earnings per share (Weighted-average common shares in 2012 were 32,000 and 2011 were 31,000)

(4)  Price-earnings

(5)  Payout

(6)  Debt to total assets

(b)  Based on the ratios calculated, discuss briefly the improvement or lack thereof in financial position and operating results from 2011 to 2012 of Kersenbrock Corporation.

(Top Tutor) Daniel C.
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School: University of Virginia
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