Financial & Managerial Accounting 3rd Edition by Charles Horngren,Harrison, Walter,Suzanne Oliver

Exercise 6

Using ratios to evaluate a stock investment
Comparative financial statement data of Tanfield, Inc., follow:


1. Market price of Tanfield's common stock: $59.36 at December 31, 2012, and $46.65 at December 31, 2011.
2. Common shares outstanding: 13,000 during 2012 and 11,000 during 2011 and 2010.
3. All sales on credit.
Requirements
1. Compute the following ratios for 2012 and 2011:
a. Current ratio
b. Times-interest-earned ratio
c. Inventory turnover
d. Gross profit percentage
e. Debt to equity ratio
f. Rate of return on common stockholders' equity
g. Earnings per share of common stock
h. Price/earnings ratio
2. Decide (a) whether Tanfield's ability to pay debts and to sell inventory improved or deteriorated during 2012 and (b) whether the investment attractiveness of its common stock appears to have increased or decreased.