Financial Statements Analysis for Land of Lincoln Equipment, Inc.

in partial fulfillment of the requirements for the course MGT452 - Finance

Submitted to: Juan Carlos O. Medina

Submitted by:
Mark Lyndon de Ramos
Andrea Felix
Anna Louise Lacson
Janice April Mercurio
Angela Perillo

Submitted: May 23, 2018

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 LAND OF LINCOLN EQUIPMENT, INC.
Years ended December 31, 2008, and 2007

Income Statement Data Balance Sheet Data

2008 2007 2008 2007
Net Sales $ 1,400,000 $ 1,100,000 Assets
Cost of Goods Sold 760,000 600,000 Cash $ 50,000 $ 40,000
Gross Profit on Sales $ 640,000 $ 500,000 Accounts Receivable (net) 300,000 320,000
Selling, General, and Other Expenses 340,000 280,000 Inventory 380,000 420,000
Income before Taxes $ 300,000 $ 220,000 Prepaid Expenses 30,000 10,000
Income Taxes 120,000 89,000 Land, Buildings, and Equipment (net) 760,000 600,000
Net Income $ 180,000 $ 131,000 Intangible Assets 110,000 100,000
Dividends Paid 155,000 150,000 Other Assets 70,000 10,000
Net increase (decrease) in retained earnings $ 25,000 $ (19,000) $ 1,700,000 $ 1,500,000
Liabilities and Stockholders' Equity
Additional Information: Accounts Payable $ 120,000 $ 185,000
1. Bonds payable are the only interest-bearing liability. Wages, Interest, and Dividends Payable 25,000 25,000
2. Year-end price per share of the company's stock was $35 for 2008 and $25 Income Tax Payable 29,000 5,000
for 2007. Miscellaneous Current Liabilities 10,000 4,000
3. Cash flow from operations amounted to $261,000 in 2008 and $15,000 in 8% Bonds Payable 300,000 300,000
2007. Deferred Revenues (Long-term) 10,000 10,000
4. Depreciation for the year amounted to $76,000 in 2008 and $60,000 in No-par Common Stock $10 stated value 500,000 400,000
2007. Additional Paid-in Capital 510,000 400,000
Retained Earnings 196,000 171,000
$ 1,700,000 $ 1,500,000

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Vertical Analysis

Vertical analysis, also called common-size analysis, is a technique that expresses each financial statement item as a percentage of a base
amount.

LAND OF LINCOLN EQUIPMENT, INC.

Income Statement
Years ended December 31, 2008, and 2007

2008 % 2007 %
Net Sales $ 1,400,000 100% $ 1,100,000 100%
Cost of Goods Sold 760,000 54% 600,000 55%
Gross Profit on Sales $ 640,000 46% $ 500,000 45%
Selling, General, and Other Expenses 340,000 24% 280,000 25%
Income before Taxes $ 300,000 21% $ 220,000 20%
Income Taxes 120,000 9% 89,000 8%
Net Income $ 180,000 13% $ 131,000 12%
Dividends Paid 155,000 11% 150,000 14%
Net increase (decrease) in retained earnings $ 25,000 2% $ (19,000) -2%

Cost of goods sold as a percentage of net sales declined 1% (55% vs. 54%) as well as the total expenses. As a result, it is not surprising to see net
income as a percentage of net sales increase from 12% to 13%. Land of Lincoln Equipment Inc. appears to be a profitable business that is becoming
even more successful.

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 LAND OF LINCOLN EQUIPMENT, INC.
Balance Sheet
Years ended December 31, 2008, and 2007

2008 % 2007 %
Assets
Cash $ 50,000 3% $ 40,000 3%
Accounts Receivable (net) 300,000 18% 320,000 21%
Inventory 380,000 22% 420,000 28%
Prepaid Expenses 30,000 2% 10,000 1%
Land, Buildings, and Equipment (net) 760,000 45% 600,000 40%
Intangible Assets 110,000 6% 100,000 7%
Other Assets 70,000 4% 10,000 1%
$ 1,700,000 100% $ 1,500,000 100%
Liabilities and Stockholders' Equity
Accounts Payable $ 120,000 7% $ 185,000 12%
Wages, Interest, and Dividends Payable 25,000 1% 25,000 2%
Income Tax Payable 29,000 2% 5,000 0%
Miscellaneous Current Liabilities 10,000 1% 4,000 0%
8% Bonds Payable 300,000 18% 300,000 20%
Deferred Revenues (Long-term) 10,000 1% 10,000 1%
No-par Common Stock $10 stated value 500,000 29% 400,000 27%
Additional Paid-in Capital 510,000 30% 400,000 27%
Retained Earnings 196,000 12% 171,000 11%
$ 1,700,000 100% $ 1,500,000 100%

The vertical analysis shows the relative size of each category in the balance sheet. It also can show the percentage change in the individual asset,
liability, and stockholders’ equity items. For Land of Lincoln Equipment Inc., the current assets decreased from 53% of total assets in 2007 to 45%
in 2008. Land, Buildings, and equipment (net) have increased from 40% to 45% of total assets. Retained earnings have slightly increased from
11% to 12% of total liabilities and stockholders’ equity. These results reinforce the earlier observations that Land of Lincoln Equipment Inc. is
choosing to finance its growth through retention of earnings rather than through issuing additional debt.

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Horizontal Analysis

Horizontal analysis, also called trend analysis, is a technique for evaluating a series of financial statement data over a period of time. Its purpose
is to determine the increase or decrease that has taken place. This change may be expressed as either an amount or a percentage.

LAND OF LINCOLN EQUIPMENT, INC.

Income Statement
Years ended December 31, 2008, and 2007
Increase or (Decrease) during
2008
2008 2007 Amount %
Net Sales $ 1,400,000 $ 1,100,000 300,000 27%
Cost of Goods Sold 760,000 600,000 160,000 27%
Gross Profit on Sales $ 640,000 $ 500,000 140,000 28%
Selling, General, and Other Expenses 340,000 280,000 60,000 21%
Income before Taxes $ 300,000 $ 220,000 80,000 36%
Income Taxes 120,000 89,000 31,000 35%
Net Income $ 180,000 $ 131,000 49,000 37%
Dividends Paid 155,000 150,000 5,000 3%
Net increase (decrease) in retained earnings $ 25,000 $ (19,000) 6,000 32%

Horizontal analysis of the income statements shows the following changes:

• Net sales increased by P300,000 or 27%.
• Cost of goods sold increased by P160,000 or 27%.
• Total expenses increased by P60,000 or 21%.
Overall, gross profit and net income were up substantially. Gross profit on sales increased by 28%, and net income by 32%. As such, Land of
Lincoln Equipment Inc.'s profit trend appears favorable.

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 LAND OF LINCOLN EQUIPMENT, INC.
Balance Sheet
Years ended December 31, 2008, and 2007
Increase or (Decrease) during 2008
2008 2007 Amount %
Assets
Cash $ 50,000 $ 40,000 10,000 25%
Accounts Receivable (net) 300,000 320,000 (20,000) -6%
Inventory 380,000 420,000 (40,000) -10%
Prepaid Expenses 30,000 10,000 20,000 200%
Land, Buildings, and Equipment (net) 760,000 600,000 160,000 27%
Intangible Assets 110,000 100,000 10,000 10%
Other Assets 70,000 10,000 60,000 600%
$ 1,700,000 $ 1,500,000 200,000 13%
Liabilities and Stockholders' Equity
Accounts Payable $ 120,000 $ 185,000 (65,000) -35%
Wages, Interest, and Dividends Payable 25,000 25,000 - 0%
Income Tax Payable 29,000 5,000 24,000 480%
Miscellaneous Current Liabilities 10,000 4,000 6,000 150%
8% Bonds Payable 300,000 300,000 - 0%
Deferred Revenues (Long-term) 10,000 10,000 - 0%
No-par Common Stock $10 stated value 500,000 400,000 100,000 25%
Additional Paid-in Capital 510,000 400,000 110,000 28%
Retained Earnings 196,000 171,000 25,000 15%
$ 1,700,000 $ 1,500,000 200,000 13%

The comparative balance sheets in the above illustration show that a number of significant changes have occurred in Land of Lincoln Equipment
Inc.’s financial structure from 2007 to 2008:
• In the assets section, Land, Buildings, and equipment (net) increased by P160,000 or 27%.
• In the liabilities section, accounts payable decreased by 35% or 65,000 from 2007 to 2008.
• In the stockholders’ equity section, retained earnings increased P25,000 or 15%.

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These changes suggest that the company expanded its asset base during 2008 and financed this expansion primarily by retaining income rather

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than assuming additional long-term debt.
Ratio Analysis

Overall Performance Measures

2008 2007
𝑀𝑎𝑟𝑘𝑒𝑡 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 35 25
𝑃𝑟𝑖𝑐𝑒/𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑅𝑎𝑡𝑖𝑜 = = 9.72 𝑡𝑖𝑚𝑒𝑠 = 7.36 𝑡𝑖𝑚𝑒𝑠
𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 3.60 3.28
Analysis: The price-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share
earnings. P/E is sometimes referred to as the price multiple because it shows how much investors are willing to pay per dollar of earnings. In
2007, investors are paying 7.36 times per 1$ earning of Land of Lincoln Equipment, Inc. which increased to 9.72 (~32% from 2007). This is
good because the market is valuing the company more than the previous year and that investors are believing that the company has future
potential for growth.

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 + 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 (1 − 𝑇𝑎𝑥 𝑅𝑎𝑡𝑒) 180,000 131,000

𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐴𝑠𝑠𝑒𝑡𝑠 = = 10.59% = 8.73%
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 1,700,000 1,500,000

Analysis: This financial ratio shows the percentage of profit a company earns in relation to its overall resources. The total assets of the
company are earning 10.59% of net income for each dollar of total asset invested in 2008. The company's ROA increased by 1.85% from 2007
to 2008.

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 + 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 (1 − 𝑇𝑎𝑥 𝑅𝑎𝑡𝑒) 180,000 131,000

𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐼𝑛𝑣𝑒𝑠𝑡𝑒𝑑 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 = = 11.87% = 10.23%
𝐿𝑜𝑛𝑔 − 𝑡𝑒𝑟𝑚 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 + 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 ′ 𝐸𝑞𝑢𝑖𝑡𝑦 1,516,000 1,281,000

Analysis: Return on invested capital measures how well a company turns the capital invested in the company into profits. With this company,
in the year 2007, 10.23% of the investment was turned into profit. After a year, the company was able to increase it to 11.87%.

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 180,000 131,000

𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 ′ 𝐸𝑞𝑢𝑖𝑡𝑦 = = 14.93% = 13.49%
𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 ′ 𝐸𝑞𝑢𝑖𝑡𝑦 1,206,000 971,000

Analysis: The return on shareholder’s equity measures the rate of return earned on the stockholder’s equity investment in the firm. The year
2008 has a higher return on equity with 14.93% compared to the 13.49% for the year 2007. With this, it can be concluded that during the year

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2008, the firm’s stockholders received a greater return since it has a greater percentage.

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Profitability Measures
2008 2007

𝐺𝑟𝑜𝑠𝑠 𝑀𝑎𝑟𝑔𝑖𝑛 640,000 500,000

𝐺𝑟𝑜𝑠𝑠 𝑀𝑎𝑟𝑔𝑖𝑛 % = = 45.71% = 45.45%
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑠 1,400,000 1,100,000
Analysis: Gross Margin represents the ratio of gross margin expressed as a percentage of sales. After paying off the cost of goods sold, the ratio
of the company shows how it is efficiently using its resources in producing sales revenues. Gross profit margin increased by 0.26% from 45.45%
in 2007 and 45.71% in 2008.

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 180,000 131,000

𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 = = 12.86% = 11.91%
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑠 1,400,000 1,100,000

Analysis: Net profit margin measures the percentage of net income of an entity to its net sales. It represents the proportion of sales that is left
over after all relevant expenses have been adjusted. It is used to compare the profitability of competitors in the same industry and it can also
be used to determine the profitability potential of different industries. Land of Lincoln, Inc. was able to convert 11.91% of its Sales into Net
Income which is good as it has increased by 0.95% in 2008.

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 180,000 131,000

𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒 = = $3.60 = $3.28
𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑆ℎ𝑎𝑟𝑒𝑠 50,000 40,000

Analysis: Earnings per share measures how much a company earns in every one dollar. Land Lincoln Equipment Inc. earns one dollar for every
one dollar invested in their company. In other words, the company was able to triple the money invested in them.

Tests of Investment Utilization

2008 2007

𝑆𝑎𝑙𝑒𝑠 𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑠 1,400,000 1,100,000

𝐴𝑠𝑠𝑒𝑡 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 = = 0.82 𝑡𝑖𝑚𝑒𝑠 = 0.73 𝑡𝑖𝑚𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 1,700,000 1,500,000

Analysis: The asset turnover ratio measures how efficient a company uses its assets to generate sales revenue or sales income for the company.
The company is earning 0.82 times for every dollar of assets invested. In comparison with 2007, the asset turnover increased by 0.09.

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 𝑆𝑎𝑙𝑒𝑠 𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑠 1,400,000 1,100,000
𝐼𝑛𝑣𝑒𝑠𝑡𝑒𝑑 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 = = 0.92 𝑡𝑖𝑚𝑒𝑠 = 0.86 𝑡𝑖𝑚𝑒𝑠
𝐿𝑜𝑛𝑔 − 𝑡𝑒𝑟𝑚 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 + 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 ′ 𝐸𝑞𝑢𝑖𝑡𝑦 1,516,000 1,281,000

Analysis: Invested capital is the total amount of money raised by a company by issuing securities to shareholders and bondholders. With the
year 2007 having a lower capital turnover compared to 2008, it means that 2007 corresponds to a higher profit margin.

𝑆𝑎𝑙𝑒𝑠 𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑠 1,400,000 1,100,000

𝐸𝑞𝑢𝑖𝑡𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 = = 1.16 𝑡𝑖𝑚𝑒𝑠 = 1.13 𝑡𝑖𝑚𝑒𝑠
𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 ′ 𝐸𝑞𝑢𝑖𝑡𝑦 1,206,000 971,000
Analysis: Equity turnover ratio measures the proportion of a company's sales to its stockholders' equity. The intent of the measurement is to
determine the efficiency with which management is using equity to generate revenue. For the company, this ratio was good because it has
increased by 0.03 times showing an efficient shareholder equity use.
𝑆𝑎𝑙𝑒𝑠 𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑠 1,400,000 1,100,000
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐼𝑛𝑡𝑒𝑛𝑠𝑖𝑡𝑦 = = 1.67 𝑡𝑖𝑚𝑒𝑠 = 1.67 𝑡𝑖𝑚𝑒𝑠
𝑃𝑟𝑜𝑝𝑒𝑟𝑡𝑦, 𝑃𝑙𝑎𝑛𝑡, 𝑎𝑛𝑑 𝐸𝑞𝑢𝑖𝑝𝑚𝑒𝑛𝑡 836,000 660,000

Analysis: Capital intensity ratio measures the company’s amount of capital needed per dollar of sales revenues. The company seems to be
using its assets more efficiently. Its efficient use of its resources resulted to a consistent capital intensity ratio from 2007 to 2008.

𝐶𝑎𝑠ℎ 50,000 40,000

𝐷𝑎𝑦𝑠 ′ 𝐶𝑎𝑠ℎ = = 17.40 𝑑𝑎𝑦𝑠 = 16.15 𝑑𝑎𝑦𝑠
𝐶𝑎𝑠ℎ 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 ÷ 365 2,873.97 2,476.71
Analysis: Days of cash on hand is a measure of Land of Lincoln Equipment Inc.’s financial security. It shows how much cash a company has
saved up that isn’t reserved for anything else (i.e. unrestricted cash) and estimates the number of days the system can pay its daily operation
and maintenances costs before running out of this cash. Having increased in 2008 by 1.25 days is a good indication for the company, as it has
enough breathing room but still needs close attention to cash flow.

𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 300,000 320,000

𝐷𝑎𝑦𝑠 ′ 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 (𝐶𝑜𝑙𝑙𝑒𝑐𝑡𝑖𝑜𝑛 𝑃𝑒𝑟𝑖𝑜𝑑) = = 78.21 𝑑𝑎𝑦𝑠 = 106.18 𝑑𝑎𝑦𝑠
𝑆𝑎𝑙𝑒𝑠 ÷ 365 3,835.62 3,013.70

Analysis: Collection period ratio measures the average number of days that the company takes in collecting the payment after sales. The
average collection period in 2008 is 78.21 days compared to 106.18 days in 2007. Collection of receivables is more efficient in 2008.

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 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 380,000 420,000
𝐷𝑎𝑦𝑠 ′ 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = = 𝑑𝑎𝑦𝑠 = 182.5 𝑑𝑎𝑦𝑠 = 255.5 𝑑𝑎𝑦𝑠
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑆𝑎𝑙𝑒𝑠 ÷ 365 2,082.19 1,643.84
Analysis: The days’ inventory turnover is an indicator of the size of the firm’s investment in inventory. The year 2007 has a higher turnover of
255.5 days compared to the 182.5 days for the year 2008. This means that year 2007 has a lower investment in inventory and the more liquid
is the investment.
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑆𝑎𝑙𝑒𝑠 760,000 600,000
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 = = 𝑡𝑖𝑚𝑒𝑠 = 2.00 𝑡𝑖𝑚𝑒𝑠 = 1.43 𝑡𝑖𝑚𝑒𝑠
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 380,000 420,000
Analysis: Inventory turnover shows how fast the company can turn its inventory into profit. In the previous year, the inventory turns 1.43 times
and is in the company’s hands for almost 255 days. After a year of operation, the company was able to turn the inventory two times and is in
the hands of the company for 182.5 days.
𝑆𝑎𝑙𝑒𝑠 𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑠 1,400,000 1,100,000
𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 = = 2.43 𝑡𝑖𝑚𝑒𝑠 = 1.93 𝑡𝑖𝑚𝑒𝑠
𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 576,000 571,000

Analysis: The working capital turnover ratio indicates a company's effectiveness in using its working capital to generate sales revenues.
Accordingly, the company has increased its working capital turnover by 0.5 from 1.93 times in 2007 to 2.43 time in 2008.

Tests of Financial Condition

2008 2007

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 760,000 790,000

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 = = 4.13: 1 = 3.61: 1
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 184,000 219,000

Analysis: Current ratio indicates whether the business can pay debts due within one year out of the current assets. The current ratio reveals
how much “cover” the business has for every $1 that is owed by the firm. For 2007, a ratio of 3.61:1 would mean that a business has $3.61 of
current assets for every $1 of current liabilities signaling the company’s capability to pay its obligations due to a larger portion of asset value
to the value of its liabilities.

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 𝑀𝑜𝑛𝑒𝑡𝑎𝑟𝑦 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 350,000 360,000
𝐴𝑐𝑖𝑑 − 𝑡𝑒𝑠𝑡 𝑅𝑎𝑡𝑖𝑜 = = 1.90: 1 = 1.64: 1
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 184,000 219,000

Analysis: Acid-test ratio indicates whether a company has short-term assets to sufficiently cover its direct liabilities. Based on the acid-test
ratio, the company is more liquid in the year 2008. However, it is a slightly less liquid in 2007. The reason could be is that the income picks up
in 2008.

𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 494,000 529,000

𝐷𝑒𝑏𝑡/𝐸𝑞𝑢𝑖𝑡𝑦 𝑅𝑎𝑡𝑖𝑜 = = 40.96% = 54.48%
𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 ′ 𝐸𝑞𝑢𝑖𝑡𝑦 1,206,000 971,000

Analysis: The debt ratio measures the percentage of the firm’s assets that were financed using current plus long-term liabilities. With this, the
company during the year 2007 has a greater reliance on non-owner financing or financial leverage since it has a higher ratio compared to the
year 2008.

𝐿𝑜𝑛𝑔 − 𝑡𝑒𝑟𝑚 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 310,000 310,000

𝐷𝑒𝑏𝑡/𝐶𝑎𝑝𝑖𝑡𝑎𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 = = 20.45% = 24.20%
𝐿𝑜𝑛𝑔 − 𝑡𝑒𝑟𝑚 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 + 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 ′ 𝐸𝑞𝑢𝑖𝑡𝑦 1,516,000 1,281,000

Analysis: Debt to capitalization ratio measures the total amount of outstanding debt as a percentage of the firm’s total capitalization. With Land
Lincoln Equipment Inc., in the year 2007, 24.20% of the company’s structure is debt. In the year 2008, it decreased to 20.45%.

𝑃𝑟𝑒𝑡𝑎𝑥 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑃𝑟𝑜𝑓𝑖𝑡 + 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 324,000 244,000

𝑇𝑖𝑚𝑒𝑠 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑎𝑟𝑛𝑒𝑑 = = 13.50 𝑡𝑖𝑚𝑒𝑠 = 10.17 𝑡𝑖𝑚𝑒𝑠
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 24,000 24,000

Analysis: Times interest earned ratio measures the ability of Land of Lincoln, Inc. to pay its debt obligations. This ratio is commonly used
by lenders to ascertain whether a prospective borrower can afford to take on any additional debt. Results show strong indication that the
company has the ability to service debt and has even increased in 2008.

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 𝐶𝑎𝑠ℎ 𝑔𝑒𝑛𝑒𝑟𝑎𝑡𝑒𝑑 𝑏𝑦 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑠 261,000 15,000
𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤/𝐷𝑒𝑏𝑡 = = 52.83% = 2.84%
𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡 494,000 529,000

Analysis: Cash flow-to-debt ratio is used in analyzing how long it would take for the company to repay its debt if it devoted all of its cash flow
to debt repayment. Based on the Cash flow/Debt Ratio in 2008, the company's cash flow has more than half of the company's debt. And debt
can be paid in less than 2 years assuming all is well in the next year. While in 2007, it's cash flow can only pay 2% of its debt, meaning the
company incurred a loss but it overturned dramatically the following year.

𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 3.10 3.75

𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 𝑌𝑖𝑒𝑙𝑑 = = 8.86% = 15%
𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 35.00 25.00
Analysis: Dividend yield indicates how much a company pays out in dividends each year relative to its share price. The year 2007 can be
considered to be the better year since it has a higher percentage compared to the year 2008 and a higher percentage means that it had a better
performance and it was less risky.

𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 155,000 150,000

𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑃𝑎𝑦𝑜𝑢𝑡 = =% = 86.11% = 114.50%
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 180,000 131,000

Analysis: Dividend payout ratio measures the number of dividends paid to its shareholders compared to the net income of the company. In
the year 2007, the company’s dividend payout ratio is more than 100%. This meant that the company gave out more money than it earned in
that year. This is probably the reason why in the following year, the company lowered its dividend payout to 86.11%.

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