Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 54

Ratio analysis—comprehensive problem Presented here are summarized data from the balance sheets and income statements of Wiper, Inc.:

WIPER, INC. Condensed Balance Sheets December 31, 2011, 2010, 2009 (in millions)
	2011	2010	2009
Current assets	$ 677	$ 891	$ 736
Other assets	2,413	1,920	1,719
	$3,090	$2,811	$2,455
Current liabilities	$ 562	$ 803	$ 710
Long-term liabilities . . .	1,521	982	827
Owners’ equity	1,007	1,026	918
	$3,090	$2,811	$2,455

WIPER, INC.
Selected Income Statement and Other Data For the Years Ended December 31, 2011 and 2010 (in millions)
	2011	2010
Income statement data:
Sales	$3,050	$2,913
Operating income	296	310
Interest expense	84	65
Net income	192	187
Other data:
Average number of common shares outstanding	41.3	46.7
Total dividends paid	$ 50.0	$ 52.3

Required:

a.Calculate return on investment, based on net income and average total assets, for 2011 and 2010. Show both margin and turnover in your calculation.

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b. Calculate return on equity for 2011 and 2010.

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c. Calculate working capital and the current ratio for each of the past three years.

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d. Calculate earnings per share for 2011 and 2010.

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e. If Wiper’s stock had a price/earnings ratio of 13 at the end of 2011, what was the market price of the stock?

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f. Calculate the cash dividend per share for 2011 and the dividend yield based on the market price calculated in part e.

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g. Calculate the dividend payout ratio for 2011.

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h. Assume that accounts receivable at December 31, 2011, totaled $309 million. Calculate the number of days’ sales in receivables at that date.

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i. Calculate Wiper’s debt ratio and debt/equity ratio at December 31, 2011 and 2010.

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j. Calculate the times interest earned factor for 2011 and 2010.

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k. Review the results of these calculations, evaluate the profitability and liquidity of this company, and state your opinion about its suitability as an investment for a young, single professional with funds to invest in common stock.

Step 1 of 19

Ratio analysis–Comprehensive problem

Ratio analysis: Ratio analysis is used for fundamental analysis of a business.

a) The computation of ROI, based on presented net income as well as average total assets for year 2010 and 2011 is as follows:

Or

Substitute: