The Charter CompanyDiscussion Questions Answer these questions using the overview (p. 1) and 5...

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The Charter CompanyDiscussion Questions Answer these questions using the overview (p. 1) and 5 Exhibits (pp. 3 – 9). Write your responses in a new thread on the board. 1. Calculate the following ratios for each year during the period XXXXXXXXXXComment on the trend indicated by each ratio with respect to the financial performance and condition of the Charter Company. a. Profitability: Return on average total assets (assume a 46% income tax rate) b. Turnover: i. Accounts receivable (based on average gross trade receivables). ii. Inventory (based on average total inventory). iii. Total assets (based on average total assets). c. Liquidity: i. Current ratio ii. Quick ratio d. Solvency i. Total liabilities to total equities ii. Total long-term debt to total long-term debt plus owner’s equity 2. The Charter Company had a number of nonrecurring and/or noncash components of income from continuing operations in 1983. Beginning with the 1983 earnings from continuing operations, adjust this figure for nonrecurring and/or noncash items (information for these adjustments are included in Exhibit 1 (p. 3), Exhibit 3 (p. 6), and Exhibit 4 (pp. 7 – XXXXXXXXXXBased on the information presented in the case, discuss the extent to which the stock market, in the aggregate, anticipated Charter’s problems and priced its common stock accordingly (see Exhibit 5 (p. 9)).

David · Accepted Answer

The Charter Company 
1) Calculate the following ratios for each year during the period 1980-1983. Comment on the trend 
indicated by each ratio with respect to the financial performance and condition of the Charter 
Company. 
a. Profitability: Return on average total assets (assume a 46% income tax rate)
Computation of Return on Total Asset 
Particulars 1983 1982 1981 1980 
Total Asset          1,813,199           1,628,046           1,541,326           1,746,260  
Average Total Asset = (Op. + Cl.)/2          1,720,623           1,584,686           1,643,793           1,737,477  
Net Earnings After Tax                53,895                 35,260                   7,717                 50,237  
Return on average total asset 3.13% 2.23% 0.47% 2.89%
Comment: 
The return on average total asset has seen a significant increasing trend from the year 1981 after a 
steep faal in the year 1981. However on closely analyzing the data it is found that the fall in profit in the 
year 1981 was due to extraordinary loss which was charged to the income statement in that year. If the 
effect of such extraordinary loss is removed there has been a constant rise in the profit of the company.
b. Turnover: 
a. Accounts receivable (based on average gross trade receivables). 
b. Inventory (based on average total inventory). 
c. Total assets (based on average total assets).
Computation of Turnover Ratio 
Particulars 1983 1982 1981 1980 
Revenue          5,656,770           4,017,161           4,966,171           4,563,011  
Cost of Sales          5,364,820           3,744,462           4,512,215           4,193,275  
Total Asset          1,813,199           1,628,046           1,541,326           1,746,260  
Accounts Receivable              340,418               327,610               375,659               367,762  
Inventory              369,716               239,749               136,687               295,571  
Average Total Asset          1,720,

The Charter Company Discussion Questions Answer these questions using the overview (p. 1) and 5 Exhibits (pp. 3 – 9). Write your responses in a new thread on the board. 1. Calculate the following...

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