is the company favorably ldquo trading on its equity rdquo explain 563116

Ratios The following are a condensed income statement for 2007 and a December 31, 2007 balance sheet for the Allen Company:

Income Statement

Sales (net)

$304,400

Cost of goods sold

183,600

Gross profit

$120,800

Operating expenses

82,000

Interest expense

7,000

Income before income taxes

$31,800

Income taxes

10,000

Net income

$21,800

Balance Sheet

Cash

$8,200

Accounts payable

$18,000

Receivables (net)

14,700

Other current liabilities

6,800

Inventory

19,300

Bonds payable, 10%

70,000

Property, plant, and equipment (net)

195,800

Common stock, $10 par

80,500

Premium on common stock

24,000

Retained earnings

38,700

Total Assets

$238,000

Total Liabilities and Stockholders’ Equity

$238,000

Additional information: The corporate common stock was outstanding the entire year and is selling for $16 per share at yearend. On January 1, 2007, the inventory was $21,500, the total assets were $224,000, the accounts payable were $18,800, and the total stockholders’ equity was $130,800. The company operates on a 300 day business year.

Required

For the Allen Company, compute the following ratios:

1. Price/earnings

2. Profit margin

3. Return on total assets

4. Return on stockholders’ equity

5. Current

6. Inventory turnover (in days)

7. Payables turnover (in days)

8. Debt

Is the company favorably “trading on its equity”? Explain.

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