Horizontal Analysis and Ratios

Horizontal Analysis and Ratios – The following are comparative financial statements of the Cohen Company for 2006, 2007, and 2008:

Comparative Income Statements

For Years Ended December 31,

2008

2007

2006

Sales (net)

$102,200

$91,500

$81,700

Cost of goods sold

61,100

52,800

47,150

Gross profit

$41,100

$38,700

$34,550

Selling expenses

11,400

10,000

-8,900

Administrative expenses

8,700

7,843

6,950

Interest expense

3,000

4,000

4,000

Total expenses

23,100

21,843

19,850

Income before income taxes

$18,000

$16,857

$14,700

Income tax expense

5,400

5,057

4,410

Net income

$12,600

$11,800

$10,290

Earnings per share

?

?

?

Comparative Retained Earnings Statements

Comparative Retained Earnings Statements

2008

2007

2006

Beginning retained earnings

$28,800

$20,800

$14,310

Add: Net income

12,600

11,800

10,290

$41,400

$32,600

$24,600

Less: Dividends distributed

-4,410

3,800

3,800

Ending retained earnings

$36,990

$28,800

$20,800

Comparative Balance Sheets

December 31,

2008

2007

2006

Cash

$4,200

$4,000

$4,100

Receivables (net)

7,600

7,000

6,200

Inventories

9,800

9,000

8,600

Noncurrent assets

119,390

112,000

107,100

Total Assets

$140,990

$132,000

$126,000

Current liabilities

$12,000

$10,000

$12,000

Bonds payable, 10%

30,000

40,000

40,000

Common stock, $2 par

8,400

7,600

7,600

Premium on common stock

53,600

45,600

45,600

Retained earnings

36,990

28,800

20,800

Total Liabilities and Stockholders’ Equity

$140,990

$132,000

$126,000

Additional information: Credit sales were 65% of net sales in 2007 and 60% in 2008. At the beginning of 2008, 400 shares of common stock were issued, the first sale of stock in several years. The Cohen Company is concerned. Although it increased the dividends paid per share by 5% in 2008 and its 2008 net income is higher than 2007 net income, the market price of its common stock dropped from $22 per share at the beginning of 2008 to $21 per share at year-end.

Required

1. For 2006, 2007, and 2008, prepare horizontal analyses for the Cohen Company using a year-to-year approach.

2. For 2007 and 2008, compute the following ratios:

a. Current

b. Acid-test

c. Inventory turnover

d. Receivables turnover

e. Earnings per share

f. Dividend yield

g. Return on total assets

h. Return on stockholders’ equity

i. Debt

3. Based on your results, discuss the possible reasons for the decrease in the market price per share in 2008