Question

The condensed financial statements of Murawski Company for the years 2019 and 2020 are presented follows. (Amounts in thousands.)

MURAWSKI COMPANY Balance Sheets December 31
		2020			2019
Current assets
Cash and cash equivalents		$ 358			$ 353
Accounts receivable (net)		388			490
Inventory		388			474
Prepaid expenses		170			120
Total current assets		1,304			1,437
Investments		13			12
Property, plant, and equipment		390			418
Intangibles and other assets		492			526
Total assets		$2,199			$2,393
Current liabilities		$ 800			$ 884
Long-term liabilities		354			390
Stockholders’ equity—common		1,045			1,119
Total liabilities and stockholders’ equity		$2,199			$2,393

MURAWSKI COMPANY Income Statements For the Years Ended December 31
		2020			2019
Sales revenue		$3,710			$3,800
Costs and expenses
Cost of goods sold		896			984
Selling & administrative expenses		2,330			2,410
Interest expense		25			22
Total costs and expenses		3,251			3,416
Income before income taxes		459			384
Income tax expense		160			81
Net income		$ 299			$ 303

Compute the following ratios for 2020 and 2019. (Round current ratio and invertory turnover ratio to 2 decimal places, e.g. 1.62 or 1.62% and all other answers to 1 decimal place, e.g. 1.6 or 1.6%.)

(a)		Current ratio.
(b)		Inventory turnover. (Inventory on 12/31/18 was $312.)
(c)		Profit margin ratio.
(d)		Return on assets. (Assets on 12/31/18 were $1,878.)
(e)		Return on common stockholders’ equity. (Stockholders' equity on 12/31/18 was $882.)
(f)		Debt to assets ratio.
(g)		Times interest earned.

Answer 1

Answer of Part a:

For 2019:

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $1,437 / $884
Current Ratio = 1.63

For 2020:

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $1,304 / $800
Current Ratio = 1.63

Answer of Part b:

For 2019:

Average Inventory = (Beginning Inventory + Ending Inventory) /2
Average Inventory = ($312 + $474) /2
Average Inventory = $393

Inventory turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $984 / $393
Inventory turnover = 2.50

For 2020:

Average Inventory = (Beginning Inventory + Ending Inventory) /2
Average Inventory = ($474 + $388) /2
Average Inventory = $431

Inventory turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $896 / $431
Inventory turnover = 2.08

Answer of Part c:

For 2019:

Profit Margin Ratio = Net Income / Sales * 100
Profit Margin Ratio = $303 / $3,800 * 100
Profit Margi ratio = 8%

For 2020:

Profit Margin Ratio = Net Income / Sales * 100
Profit Margin Ratio = $299 / $3,710 * 100
Profit Margi ratio = 8.1%

Answer of Part d:

For 2019:

Average Assets = (Beginning Assets + Ending Assets) /2
Average Assets = ($1,878 + $2,393) / 2
Average Assets = $2,135.5

Return on Assets = Net Income / Average Assets *100
Return on Assets = $303 / $2,135 .5 *100
Return on Assets = 14.2%

For 2020:

Average Assets = (Beginning Assets + Ending Assets) /2
Average Assets = ($2,393 + $2,199) / 2
Average Assets = $2,296

Return on Assets = Net Income / Average Assets *100
Return on Assets = $299 / $2,296 *100
Return on Assets = 13.0%