Chapter 2: 1DQ (page 46)
Discuss some financial variables that affect the price-earnings ratio
The price-earning ratio is affected by the growth in revenues and the return on equity.
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Stein Books Inc. sold 1,900 finance textbooks for \(250 each to High Tuition University in 20X1. These books cost \)210 to produce. Stein Books spent \(12,200 (selling expense) to convince the university to buy its books. Depreciation expense for the year was \)15,200. In addition, Stein Books borrowed $104,000 on January 1, 20X1, on which the company paid 12 percent interest. Both the interest and principal of the loan were paid on December 31, 20X1. The publishing firm’s tax rate is 30 percent. Did Stein Books make a profit in 20X1? Please verify with an income statement.
Explain how depreciation generates actual cash flows for the company.
Given the following information, prepare an income statement for the Dental Drilling Company.
Selling and administrative expenses | $112,000 |
Depreciation expenses | 73,000 |
Sales | 489,000 |
Interest expenses | 45,000 |
Cost of goods sold | 156,000 |
Taxes | 47,000 |
Baker Oats had an asset turnover of 1.6 times per year.
a. If the return on total assets (investment) was 11.2 percent, what was Baker’sprofit margin?
If the accounts receivable turnover ratio is decreasing, what will be happening to the average collection period?
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