Thursday 12 September 2013

Some recent financial statements for Smolira Golf, Inc., follow. 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%

Some recent financial statements for Smolira Golf, Inc., follow.

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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