The condensed financial statements of Ivanhoe Company for the years 2016 and 2017 are presented as follows. (Amounts in thousands.) IVANHOE COMPANY Balance Sheets December 31 2017 2016 Current assets Cash and cash equivalents $330 $360 Accounts receivable (net) 640 570 Inventory 530 460 Prepaid expenses 120 160 Total current assets 1,620 1,550 Investments 180 180 Property, plant, and equipment (net) 420 380 Intangibles and other assets 530 510 Total assets $2,750 $2,620 Current liabilities $1,070 $960 Long-term liabilities 480 450 Stockholders’ equity—common 1,200 1,210 Total liabilities and stockholders’ equity $2,750 $2,620 IVANHOE COMPANY Income Statements For the Year Ended December 31 2017 2016 Sales revenue $3,870 $3,530 Costs and expenses Cost of goods sold 1,125 1,060 Selling & administrative expenses 2,400 2,330 Interest expense 25 20 Total costs and expenses 3,550 3,410 Income before income taxes 320 120 Income tax expense 96 36 Net income $ 224 $ 84 Compute the following ratios for 2017 and 2016. (Round current ratio and inventory turnover to 2 decimal places, e.g. 1.83 and all other answers to 1 decimal place, e.g. 1.8 or 12.6%.) (a) Current ratio. (b) Inventory turnover. (Inventory on 12/31/15, was $430.) (c) Profit margin. (d) Return on assets. (Assets on 12/31/15, were $2,550.) (e) Return on common stockholders’ equity. (Stockholders’ equity on 12/31/15, was $920.) (f) Debt to assets ratio. (g) Times interest earned. 2017 2016 Current ratio. Enter a number rounded to 2 decimal places :1 Enter a number rounded to 2 decimal places :1 Inventory turnover. Enter a number rounded to 2 decimal places Enter a number rounded to 2 decimal places Profit margin. Enter percentages rounded to 1 decimal place % Enter percentages rounded to 1 decimal place % Return on assets. Enter percentages rounded to 1 decimal place % Enter percentages rounded to 1 decimal place % Return on common stockholders’ equity. Enter percentages rounded to 1 decimal place % Enter percentages rounded to 1 decimal place % Debt to assets ratio. Enter percentages rounded to 1 decimal place % Enter percentages rounded to 1 decimal place % Times interest earned. Enter a number rounded to 1 decimal place times Enter a number rounded to 1 decimal place times
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
The condensed financial statements of Ivanhoe Company for the years 2016 and 2017 are presented as follows. (Amounts in thousands.)
IVANHOE COMPANY
Balance Sheets
December 31
2017
2016
Current assets
Cash and cash equivalents
$330
$360
640
570
Inventory
530
460
Prepaid expenses
120
160
Total current assets
1,620
1,550
Investments
180
180
Property, plant, and equipment (net)
420
380
Intangibles and other assets
530
510
Total assets
$2,750
$2,620
Current liabilities
$1,070
$960
Long-term liabilities
480
450
1,200
1,210
Total liabilities and stockholders’ equity
$2,750
$2,620
IVANHOE COMPANY
Income Statements
For the Year Ended December 31
2017
2016
Sales revenue
$3,870
$3,530
Costs and expenses
Cost of goods sold
1,125
1,060
Selling & administrative expenses
2,400
2,330
Interest expense
25
20
Total costs and expenses
3,550
3,410
Income before income taxes
320
120
Income tax expense
96
36
Net income
$ 224
$ 84
Compute the following ratios for 2017 and 2016. (Round
(a) Current ratio.
(b) Inventory turnover. (Inventory on 12/31/15, was $430.)
(c) Profit margin.
(d) Return on assets. (Assets on 12/31/15, were $2,550.)
(e) Return on common stockholders’ equity. (Stockholders’ equity on 12/31/15, was $920.)
(f) Debt to assets ratio.
(g) Times interest earned.
2017
2016
Current ratio.
Enter a number rounded to 2 decimal places
:1
Enter a number rounded to 2 decimal places
:1
Inventory turnover.
Enter a number rounded to 2 decimal places
Enter a number rounded to 2 decimal places
Profit margin.
Enter percentages rounded to 1 decimal place
%
Enter percentages rounded to 1 decimal place
%
Return on assets.
Enter percentages rounded to 1 decimal place
%
Enter percentages rounded to 1 decimal place
%
Return on common stockholders’ equity.
Enter percentages rounded to 1 decimal place
%
Enter percentages rounded to 1 decimal place
%
Debt to assets ratio.
Enter percentages rounded to 1 decimal place
%
Enter percentages rounded to 1 decimal place
%
Times interest earned.
Enter a number rounded to 1 decimal place
times
Enter a number rounded to 1 decimal place
times
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