Some recent financial statements for Smolira Golf Corp. follow. Use this information to work Problems 26 through 30.
SMOLIRA GOLF CORP. 2015 Income Statement | ||
Sales | $422,045 | |
Cost of goods sold | 291,090 | |
37,053 | ||
Earnings before interest and taxes | $ 93,902 | |
Interest paid | 16,400 | |
Taxable income | $ 77,502 | |
Taxes (35%) | 27,126 | |
Net income | $ 50,376 | |
Dividends | $20,000 | |
|
30,376 |
26. Calculating Financial Ratios [LO2] Find the following financial ratios for Smolira Golf Corp. (use year-end figures rather than average values where appropriate):
Short-term solvency ratios:
a. Current ratio | ____________________ |
b. Quick ratio | ____________________ |
c. Cash ratio | ____________________ |
Asset utilization ratios:
d. Total asset turnover | ____________________ |
e. Inventory turnover | ____________________ |
f. Receivables turnover | ____________________ |
Long-term solvency ratios:
g. Total debt ratio | ____________________ |
h. Debt–equity ratio | ____________________ |
i. Equity multiplier | ____________________ |
j. Times interest earned ratio | ____________________ |
k. Cash coverage ratio | ____________________ |
Profitability ratios:
l. Profit margin | ____________________ |
m. |
____________________ |
n. |
____________________ |
a)
To find: The financial current ratio of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The current ratio for 2014 and 2015 is 1.10 times and 1.15 times.
Explanation of Solution
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Short-term solvency ratios:
Formula to calculate the current ratio:
Compute the current ratio:
Hence, the current ratio for 2014 is 1.10 times
Hence, the current ratio for 2015 is 1.15 times
b)
To find: The financial quick ratio of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The quick ratio for 2014 and 2015 is 0.65 and 0.68 times.
Explanation of Solution
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate Quick ratio:
Compute the quick ratio:
Hence, the quick ratio for 2014 is 0.65 times
Hence, the quick ratio for 2015 is 0.68 times.
c)
To find: The financial cash ratio of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The cash ratio for 2014 and 2015 is 0.43 times and 0.42 times.
Explanation of Solution
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the cash ratio:
Compute the cash ratio:
Hence, the cash ratio for 2014 is 0.43 times
Hence, the cash ratio for 2015 is 0.42 times
d)
To find: The financial total asset turnover ratio of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The total asset turnover ratio is 0.88 times.
Explanation of Solution
Asset utilization ratios:
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the total asset turnover ratio:
Compute the total asset turnover ratio:
Hence, the total asset turnover ratio is 0.88 times.
e)
To find: The inventory turnover ratio of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The inventory turnover ratio is 8.93 times.
Explanation of Solution
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the inventory turnover ratio:
Compute the inventory turnover ratio:
Hence, the inventory turnover ratio is 8.93 times.
f)
To find: The receivables turnover ratio of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The receivables turnover ratio is 23.09 times.
Explanation of Solution
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the receivables turnover ratio:
Compute the receivables turnover ratio:
Hence, the receivables turnover ratio is 23.09 times.
g)
To find: The total debt ratio of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The total debt ratio for 2014 is 0.37 timesand for 2015 is 0.38 times.
Explanation of Solution
Long-term solvency ratios:
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the total debt ratio:
Compute the total debt ratio:
Hence, the total debt ratio for 2014 is 0.37 times.
Hence, the total debt ratio for 2015 is 0.38 times.
h)
To find: The debt equity ratio of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The debt-equity ratio for the year 2014 is 0.58 timesand the debt-equity ratio for the year 2015 is 0.60 times.
Explanation of Solution
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the debt-equity ratio:
Compute the debt-equity:
Hence, the debt-equity ratio for the year 2014 is 0.58 times.
Hence, the debt-equity ratio for the year 2015 is 0.60 times.
Note: The total debt is calculated by adding the total-long term debt and total current liabilities.
i)
To find: The equity multiplier ratio of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The equity multiplier ratio for the year 2014 is 1.58 timesand the equity multiplier ratio for the year 2015 is 1.60 times.
Explanation of Solution
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the equity multiplier:
Compute the equity multiplier ratio for the year 2015:
Hence, the equity multiplier ratio for the year 2014 is 1.58 times.
Hence, the equity multiplier ratio for the year 2015 is 1.60 times.
j)
To find: The times interest earned of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The times interest earned is 5.73 times.
Explanation of Solution
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the times interest earned ratio:
Compute the times interest earned ratio:
Hence, the times interest earned is 5.73 times.
k)
To find: The cash coverage ratio of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The cash coverage ratio is 7.99 times.
Explanation of Solution
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the cash coverage ratio:
Compute the cash coverage ratio:
Hence, the cash coverage ratio is 7.99 times.
l)
To find: The profit margin of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The profit margin is 11.94%.
Explanation of Solution
Profitability ratios:
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the profit margin ratio:
Compute the profit margin:
Hence, the profit margin is 11.94%.
m)
To find: The return on assets of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The return on assets is 0.1194.
Explanation of Solution
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the Return on assets (ROA):
Compute the Return on assets (ROA):
Hence, the return on assets is 0.1194 or 11.94%.
n)
To find: The return on equity of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The return on equity is 0.1685.
Explanation of Solution
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the Return on equity (ROE):
Compute the Return on equity (ROE):
Hence, the return on equity is 0.1685 or 16.85%.
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Chapter 3 Solutions
FUNDAMENTALS OF CORPORATE FINANCE
- The comparative balance sheet of Prime Sports Gear, Inc., at December 31, the end of the fiscal year, is as follows: Additional data obtained from the records of Prime Sports Gear are as follows: a. Net income for 2013 was 121,610. b. Depreciation reported on income statement for 2013 was 46,500. c. Purchased 165,000 of new equipment, putting 90,000 cash down and issuing 75,000 of bonds for the balance. d. Old equipment originally costing 19,500, with accumulated depreciation of 7,950, was sold for 8,000. e. Retired 60,000 of bonds. f. Declared cash dividends of 64,000. g. Issued 1,500 shares of common stock at 27 cash per share. Open the file CASHFLOW from the website for this book at cengagebrain.com. First, enter the formulas. Then, complete the worksheet in the manner described next. According to the problem, cash increased from 39,600 to 67,210 during the year. This is a 27,610 increase. To record this increase on the worksheet, move to row 17. Since this is the first account you are analyzing, enter the letter a in column C. Then enter 27610 in column D (a debit since cash increased). This brings the year-end balance (column G) to 67,210, its proper balance. Now move to the bottom part of the statement where you see the categories Operating Activities, Investing Activities, and so on. The credit side of the entry has to be entered here. The proper space for this cash entry is on row 59. Enter the letter a in cell E59 and 27610 in cell F59. Notice the totals at the bottom of the page (row 60) now agree. The next account balance that changed is accounts receivable. It increased by 9,035. To enter this change on the worksheet, enter the letter b in cell C18 and 9035 in cell D18 (again, a debit since accounts receivable increased). This brings the year-end balance in column G to 121,250, its proper balance. The change in accounts receivable balance is an operating activity adjustment (as explained in your textbook). Enter the credit side of this entry in cells E34 and F34, and enter the explanation Increase in accounts receivable in cell A34. Note: Your textbook probably shows Net income as the first item under Operating Activities. We will get to that later. The sequence in which you enter items on this worksheet is not important. All other balance sheet accounts must be analyzed in the same manner, placing appropriate debit or credit entries in the top part of the worksheet to obtain the proper balances in column G, and then entering the second side of the entry in the appropriate row on the bottom part of the worksheet. You should use letter references to identify all entries. Also, you must enter a description of the entry in column A under the appropriate activity category. Although a sequence of analyzing the balance sheet from top to bottom is suggested here, this order is not necessary. As mentioned earlier, your textbook may specify a different sequence. Also, note that some accounts may have both debit and credit adjustments to them. The worksheet is not a substitute for a statement of cash flows, but it does provide you with all the numbers you need to properly prepare one. You will be done with your analysis when: a. The individual account balances at December 31, 2013, as shown on the worksheet (column G) equal those shown in the given problem data. b. The transaction column totals are equal (cells D60 and F60). c. The sum of the operating, investing, and financing activities (cell G59) equals the change in cash (cell D59 or F59). When you are finished, enter your name in cell A1. Save your completed file as CASHFLOW2. Print the worksheet when done. Also print your formulas. Check figure: Total credits at 12/31/2013 (cell G31), 860,460.arrow_forwardThe comparative balance sheet of Prime Sports Gear, Inc., at December 31, the end of the fiscal year, is as follows: Additional data obtained from the records of Prime Sports Gear are as follows: a. Net income for 2013 was 121,610. b. Depreciation reported on income statement for 2013 was 46,500. c. Purchased 165,000 of new equipment, putting 90,000 cash down and issuing 75,000 of bonds for the balance. d. Old equipment originally costing 19,500, with accumulated depreciation of 7,950, was sold for 8,000. e. Retired 60,000 of bonds. f. Declared cash dividends of 64,000. g. Issued 1,500 shares of common stock at 27 cash per share. You have been asked to prepare a statement of cash flows for Prime Sports Gear for 2013. Review the worksheet called CASHFLOW that has been provided to assist you in preparing the statement. The worksheet has been designed so that as you make entries in columns D and F, column G will be automatically updated. For example, FORMULA1 should be entered as =B17+D17F17. Columns C and E are to be used to enter letter references for each of the debit and credit entries on the worksheet.arrow_forwardProfitability Ratios The following data came from the financial statements of Israel Company: Revenue $900,000 Assets $600,000 Expenses 600,000 Liabilities 100,000 Net income 300,000 Average equity 500,000 Required:arrow_forward
- Income Statement for Year Ended December 31, 2018 (Millions of Dollars) Net sales 795.0 Cost of goods sold 660.0 Gross profit 135.0 Selling expenses 73.5 EBITDA 61.5 Depreciation expenses 12.0 Earnings before interest and taxes (EBIT) 49.5 Interest expenses 4.5 Earnings before taxes (EBT) 45.0 Taxes (40%) 18.0 Net income 27.0 a. Calculate the ratios you think would be useful in this analysis. b. Construct a DuPont equation, and compare the companys ratios to the industry average ratios. c. Do the balance-sheet accounts or the income statement figures seem to be primarily responsible for the low profits? d. Which specific accounts seem to be most out of line relative to other firms in the industry? e. If the firm had a pronounced seasonal sales pattern or if it grew rapidly during the year, how might that affect the validity of your ratio analysis? How might you correct for such potential problems?arrow_forwardFinancial statement analysis The financial statements for Nike, Inc., are presented in Appendix D at the end of the text. Use the following additional information (in thousands): Instructions 1. Determine the following measures for the fiscal years ended May 31, 2016, and May 31, 2015. Round ratios and percentages to one decimal place. a. Working capital b. Current ratio c. Quick ratio d. Accounts receivable turnover e. Number of days sales in receivables f. Inventory turnover g. Number of days sales in inventory h. Ratio of liabilities to stockholders equity i. Asset turnover j. Return on total assets. k. Return on common stockholders equity l. Price-earnings ratio, assuming that the market price was 54.90 per share on May 29, 2016, and 52.81 per share on May 30, 2015 m. Percentage relationship of net income to sales 2. What conclusions can be drawn from these analyses?arrow_forwardIncome Statement Ratio The income statement of Holly Enterprises shows operating revenues of $134,800, selling expenses of $38,310, general and administrative expenses of $36,990, interest expense of $580, and income tax expense of $13,920. Hollys stockholders equity was $280,000 at the beginning of the year and $320,000 at the end of the year. The company has 20,000 shares of stock outstanding at the end of the year. Required Compute Hollys profit margin. What other information would you need in order to comment on whether this ratio is favorable?arrow_forward
- Twenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions Return on total assetsarrow_forwardJuroe Company provided the following income statement for last year: Juroes balance sheet as of December 31 last year showed total liabilities of 10,250,000, total equity of 6,150,000, and total assets of 16,400,000. Refer to the information for Juroe Company on the previous page. Also, assume that Juroes total assets at the beginning of last year equaled 17,350,000 and that the tax rate applicable to Juroe is 40%. Required: Note: Round answers to two decimal places. 1. Calculate the average total assets. 2. Calculate the return on assets.arrow_forwardReturn on assets The following data (in millions) were adapted from recent financial statements of Tootsie Roll Industries Inc. (TR): The percent a company adds to its cost of sales to determine selling price is called a markup. What is Tootsie Roll’s markup percent? Round to one decimal place.arrow_forward
- Return on assets The following data (in millions) were adapted from recent financial statements of Tootsie Roll Industries Inc. (TR): What is Tootsie Roll’s percent of the cost of sales to sales? Round to one decimal place.arrow_forwardBasic Elements of Financial Reports Comparative income statements for Grammar Inc. are as follows: Required The president and management believe that the company performed better in 2016 than it did in 2015. Write the presidents letter to be included in the 2016 annual report. Explain why the company is financially sound and why shareholders should not be alarmed by the $20,000 loss in a year when operating revenues increased significantly.arrow_forward
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