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Comparative Ratio AnalysisUse the comparative data for Sunshine State Equipment, Inc., as given in Problem 22-42. In addition, the year-end price per share of Sunshines stock was \$50 for 2006, \$25 for 2007, and \$35 for 2008.Instructions:1. Compute financial ratios for the three years 20062008 as follows (for ratios normally using average balances, assume that 2005 figures are the same as 2006):(a) Accounts receivable turnover(b) Average collection period(c) Inventory turnover(d) Number of days sales in inventory(e) Fixed asset turnover(f) Debt ratio(g) Debt-to-equity ratio(h) Times interest earned (Assume that Bonds Payable is the only interest-bearing liability.)(i) Earnings per share(j) Price-earnings ratio(k) Book-to-market ratio2. Based on the ratios calculated in (1), evaluate Sunshine State Equipment, Inc., in 2008 as compared with 2007.
A Accounts receivable turnover Accounts Receivable Turnover Ratio = Sales / Average Accounts Receivable 4.67 3.44 4.88 Sales \$ 1,400,000.00 \$ 1,100,000.00 \$ 1,220,000.00 Average Accounts Receivables \$ 300,000.00 \$ 320,000.00 \$ 250,000.00 B Average collection period Average collection period = 365 / Accounts Receivables Turnover 78.21 106.18 74.80 365 365 365 365 Accounts Receivable Turnover 4.67 3.44 4.88 C Inventory turnover Inventory Turnover Ratio = Cost of goods sold / Average Inventories 2 1.43 1.74 Cost of Goods sold \$ 760,000.00 \$ 600,000.00 \$ 610,000.00 Inventories \$ 380,000.00 \$ 420,000.00 \$ 350,000.00 D Number of days sales in inventory Number of days sales in inventory = 365 / Inventory turnover 182.5 255.5 209.4262295 365 365 365 365 Inventory Turnover 2 1.43 1.74 E Fixed asset turnover Fixed asset turnover = Sales/ Fixed Assets 1.84 1.83 1.77 Sales \$ 1,400,000.00 \$ 1,100,000.00 \$ 1,220,000.00 Fixed Assets 760000 600000 690000 F Debt ratio Debt ratio = Total Debt / Total Assets 0.29 0.35 0.36 Total Debt \$ 494,000.00 \$ 529,000.00 \$ 560,000.00 Total Assets \$ 1,700,000.00 \$ 1,500,000.00 \$ 1,550,000.00 G Debt-to-equity ratio Debt to equity =…

Debt / Equity 0.41 0.54 0.57 Debt \$ 494,000.00 \$ 529,000.00 \$ 560,000.00 Shareholders equity \$ 1,206,000.00 \$ 971,000.00 \$ 990,000.00 H Times interest earned Time interest earned = EBIT / Interest expenses 11.5 8.166666667 17 EBIT \$ 276,000.00 \$ 196,000.00 \$ 340,000.00 Interest Expense 24000 24000 20000 I Earnings per share EPS = Net income / Shareholders \$ 3.60 \$ 3.28 \$ 5.20 Net income \$ 180,000.00 \$ 131,000.00 \$ 208,000.00 Shareholders 50000 40000 40000 J Price-earnings ratio Price / Earnings Ratio = Market Price per share / Earnings per share 13.89 7.63 6.73 MPS \$ 50.00 \$ 25.00 \$ 35.00 EPS \$ 3.60 \$ 3.28 \$ 5.20 k Book-to-market ratio Book-to-market ratio = Book Value / Market Value 0.2 0.4 0.2857 Book Value \$ 10.00 \$ 10.00 \$ 10.00 Markey Value \$ 50.00 \$ 25.00 \$ 35.00

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