Some recent financial statements for Smolira Golf, Inc., follow.
Explanation:
| SMOLIRA GOLF, INC. Balance Sheets as of December 31, 2013 and 2014 | ||||||||||
| 2013 | 2014 | 2013 | 2014 | |||||||
| Assets | Liabilities and Owners’ Equity | |||||||||
| Current assets | Current liabilities | |||||||||
| Cash | $ | 2,851 | $ | 2,707 | Accounts payable | $ | 2,213 | $ | 2,720 | |
| Accounts receivable | 4,707 | 5,661 | Notes payable | 1,810 | 2,236 | |||||
| Inventory | 12,718 | 13,662 | Other | 102 | 119 | |||||
| | | | | | | | | |||
| Total | $ | 20,276 | $ | 22,030 | Total | $ | 4,125 | $ | 5,075 | |
| | | | | | | | | |||
| Long-term debt | $ | 14,500 | $ | 17,260 | ||||||
| Owners’ equity | ||||||||||
| Common stock | ||||||||||
| and paid-in surplus | $ | 44,000 | $ | 44,000 | ||||||
| Fixed assets | Accumulated retained earnings | 15,714 | 39,988 | |||||||
| | | | | |||||||
| Net plant and equipment | $ | 58,063 | $ | 84,293 | Total | $ | 59,714 | $ | 83,988 | |
| | | | | | | | | |||
| Total assets | $ | 78,339 | $ | 106,323 | Total liabilities and owners’ equity | $ | 78,339 | $ | 106,323 | |
| | | | | | | | | |||
| | ||||||||||
| SMOLIRA GOLF, INC. 2014 Income Statement | ||
| Sales | $ | 189,770 |
| Cost of goods sold | 127,403 | |
| Depreciation | 5,213 | |
| | | |
| EBIT | $ | 57,154 |
| Interest paid | 1,310 | |
| | | |
| Taxable income | $ | 55,844 |
| Taxes | 19,545 | |
| | | |
| Net income | $ | 36,299 |
| | | |
| Dividends | $ | 12,025 |
| Retained earnings | 24,274 | |
| | ||
| Required: |
|
Find the following financial ratios for Smolira Golf (use year-end figures rather than average values where appropriate): (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16). Enter the profitability ratios as percents.)
|
| 2013 | 2014 | |||||
| Short-term solvency ratios | ||||||
| a. | Current ratio | times | times | |||
| b. | Quick ratio | times | times | |||
| c. | Cash ratio | times | times | |||
| Asset utilization ratios | ||||||
| d. | Total asset turnover | times | ||||
| e. | Inventory turnover | times | ||||
| f. | Receivables turnover | times | ||||
| Long-term solvency ratios | ||||||
| g. | Total debt ratio | times | times | |||
| h. | Debt-equity ratio | times | times | |||
| i. | Equity multiplier | times | times | |||
| j. | Times interest earned ratio | times | ||||
| k. | Cash coverage ratio | times | ||||
| Profitability ratios | ||||||
| l. | Profit margin | % | ||||
| m. | Return on assets | % | ||||
| n. | Return on equity | % | ||||
| | ||||||
Explanation:
| Here, we need to calculate several ratios given the financial statements. The ratios are: |
| Short-term solvency ratios: |
| a. |
| Current ratio = Current assets / Current liabilities |
| Current ratio2013 = $20,276 / $4,125 |
| Current ratio2013 = 4.92 times |
| Current ratio2014 = $22,030 / $5,075 |
| Current ratio2014 = 4.34 times |
| b. |
| Quick ratio = (Current assets – Inventory) / Current liabilities |
| Quick ratio2013 = ($20,276 – 12,718) / $4,125 |
| Quick ratio2013 = 1.83 times |
| Quick ratio2014 = ($22,030 – 13,662) / $5,075 |
| Quick ratio2014 = 1.65 times |
| c. |
| Cash ratio = Cash / Current liabilities |
| Cash ratio2013 = $2,851 / $4,125 |
| Cash ratio2013 = .69 times |
| Cash ratio2014 = $2,707 / $5,075 |
| Cash ratio2014 = .53 times |
|
Asset utilization ratios:
|
| d. |
| Total asset turnover = Sales / Total assets |
| Total asset turnover = $189,770 / $106,323 |
| Total asset turnover = 1.78 times |
| e. |
| Inventory turnover = COGS / Inventory |
| Inventory turnover = $127,403 / $13,662 |
| Inventory turnover = 9.33 times |
| f. |
| Receivables turnover = Sales / Receivables |
| Receivables turnover = $189,770 / $5,661 |
| Receivables turnover = 33.52 times |
| Long-term solvency ratios: |
| g. |
| Total debt ratio = (Current liabilities + Long-term debt) / Total assets |
| Total debt ratio2013 = ($4,125 + 14,500) / $78,339 |
| Total debt ratio2013 = .24 times |
| Total debt ratio2014 = ($5,075 + 17,260) / $106,323 |
| Total debt ratio2014 = .21 times |
| h. |
| Debt-equity ratio = (Current liabilities + Long-term debt) / Total equity |
| Debt-equity ratio2013 = ($4,125 + 14,500) / $59,714 |
| Debt-equity ratio2013 = .31 times |
| Debt-equity ratio2014 = ($5,075 + 17,260) / $83,988 |
| Debt-equity ratio2014 = .27 times |
| i. |
| Equity multiplier = 1 + D/E ratio |
| Equity multiplier2013 = 1 + .31 |
| Equity multiplier2013 = 1.31 times |
| Equity multiplier2014 = 1 + .27 |
| Equity multiplier2014 = 1.27 times |
| j. |
| Times interest earned = EBIT / Interest |
| Times interest earned = $57,154 / $1,310 |
| Times interest earned = 43.63 times |
| k. |
| Cash coverage ratio = (EBIT + Depreciation) / Interest |
| Cash coverage ratio = ($57,154 + 5,213) / $1,310 |
| Cash coverage ratio = 47.61 times |
| Profitability ratios: |
| l. |
| Profit margin = Net income / Sales |
| Profit margin = $36,299 / $189,770 |
| Profit margin = .1913, or 19.13% |
| m. |
| Return on assets = Net income / Total assets |
| Return on assets = $36,299 / $106,323 |
| Return on assets = .3414, or 34.14% |
| n. |
| Return on equity = Net income / Total equity |
| Return on equity = $36,299 / $83,988 |
| Return on equity = .4322, or 43.22% |
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