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
