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(Financial statement analysis) Lopez Electronics’ management has long
viewed TKO Electronics as an industry leader and uses this firm as a model firm for analyzing its own performance. The balance sheets and income statements for the two firms are as follows:
Lopez Electronics, Inc. Balance Sheet ($000)
TKO Electronics, Inc. Balance Sheet ($000)
Cash
$2,000
$1,500
Accounts receivable
4,500
6,000
Inventories
1,500
2,500
Current assets
$8,000
$10,000
Net fixed assets
16,000
25,000
Total assets
$24,000
$35,000
Accounts payable
$2,500
$5,000
Accrued expenses
1,000
1,500
Short-term notes payable
3,500
1,500
Current liabilities
$7,000
$8,000
Long-term debt
8,000
4,000
Owners’ equity
9,000
23,000
Total liabilities and owners’ equity
$24,000
$35,000
Lopez Electronics, Inc. Income Statement ($000)
TKO Electronics, Inc. Income Statement ($000)
Net sales (all credit)
$48,000
$70,000
Cost of goods sold
-36,000
-42,000
Gross profit
$12,000
$28,000
Operating expenses
-8,000
-12,000
Net operating income
$4,000
$16,000
Interest expense
-1,150
-550
Earnings before taxes
2,850
15,450
Income taxes (40%)
-1,140
-6,180
Net income
$1,710
$9,270
1. Calculate the following ratios for both Lopez and TKO:
Current ratio
Times interest earned
Inventory turnover
Total asset turnover
Operating profit margin
Operating return on assets
Debt ratio
Average collection period
Fixed asset turnover
Return on equity
 
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