Question

Some recent financial statements for Smolira Golf Corp. follow.
SMOLIRA GOLF CORP.
2017 and 2018 Balance Sheets
Assets Liabilities and Owners’ Equity
2017 2018 2017 2018
Current assets Current liabilities
Cash $23,046 $25,100 Accounts payable $24,184 $28,100
Accounts
receivable 13,448 16,200 Notes payable 20,000 11,800
Inventory 26,822 28,100 Other 12,571 19,100
Total $63,316 $69,400 Total $56,755 $59,000
Long-term debt $79,000 $83,424
Owners’ equity
Common stock and
paid-in surplus $48,000 $48,000
Accumulated retained
earnings 214,256 243,576
Fixed assets
Net plant and
equipment $334,695 $364,600 Total $262,256 $291,576
Total assets $398,011 $434,000 Total liabilities and
owners’ equity $398,011 $434,000
SMOLIRA GOLF CORP.
2018 Income Statement
Sales $349,760
Cost of goods sold 241,500
Depreciation 27,200
Earnings before
interest and taxes $81,060
Interest paid 15,300
Taxable income $65,760
Taxes (25%) 16,440
Net income $49,320
Dividends $20,000
Retained earnings 29,320
Find the following financial ratios for Smolira Golf Corp. (use year-end figures rather than average values where appropriate):
Short-term solvency ratios: 2014 2015
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: 2014 2015
G. Total debt ratio times times
H. Debt–equity ratio times times
I. Equity multiplier times times
J. Times interest earned times
K. Cash coverage ratio times
Profitability ratios:
L. Profit margin
M. Return on assets
N. Return on equity

Answer 1

Answer:

Short-term solvency ratios: 2014 2015

A. Current ratio = current assets / current liabilities

2014 = $63,316 / $56,755 = 1.12

2015 = $69,400 / $59,000 = 1.18

B. Quick ratio = (current assets - inventory) / current liabilities

2014 = ($63,316 - $26,822) / $56,755 = 0.64

2015 = ($69,400 - $28,100) / $59,000 = 0.7

C. Cash ratio times times  = (cash + cash equivalents) / current liabilities

2014 = $23,046 / $56,755 = 0.41

2015 = $25,100 / $59,000 = 0.43

Asset utilization ratios:

D. Total asset turnover = net sales / average total assets

= $349,760 / [($398,011 + $434,000)/2] = 0.84

E. Inventory turnover times  = COGS / average inventory

= $241,500 / [($26,822 + $28,100)/2] = 8.79

F. Receivables turnover = net sales / average accounts receivables

= $349,760 / [($13,448 + $16,200)/2] = 23.59

Long-term solvency ratios: 2014 2015

G. Total debt ratio = total liabilities / total assets

2014 = $135,755 / $398,011 = 0.34

2015 = $142,424 / $434,000 = 0.33

H. Debt–equity = total liabilities / total equity

2014 = $135,755 / $262,256 = 0.52

2015 = $142,424 / $291,576 = 0.49

I. Equity multiplier = assets / equity

2014 = $398,011 / $262,256 = 1.52

2015 = $434,000 / $291,576 = 1.49

J. Times interest earned = EBIT / interest expense

= $81,060 / $15,300 = 5.3

K. Cash coverage ratio = (EBIT + non cash expenses) / interest expense

= ($81,060 + $27,200) / $15,300 = 7.08

Profitability ratios:

L. Profit margin  = net income / sales

= $49,320 / $349,760 = 0.14

M. Return on assets  = net income / average total assets

= $49,320 / [($398,011 + $434,000)/2] = 0.12

N. Return on equity = net income / average total equity

= $49,320 / [($262,256 + $291,576)/2] = 0.18