Question

Determine Grounds Keeper’s capital structure and working capital.

Grounds Keeper Consolidated Balance Sheets (Dollars in thousands) 2012 2011 Assets Current assets: Cash and cash equivalents 78,240 44,395 Receivables 399,891 340,062 Inventories 844,737 736,677 Total current assets 1,322,868 1,121,133 Fixed assets, net 1,244,384 889,613 Other long-term assets 1,048,537 1,187,141 Total assets 3,615,789 3,197,887 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable 309,222 319,465 Accruals 201,017 145,240 Notes payable 9,748 6,669 Total current liabilities 519987 471374 Long-term debt 834574 814298 Total liabilities 1,354,561 1,285,672 Stockholders’ equity: Common stock, $0.10 par value: 15,268 15,447 Additional paid-in capital 1,464,560 1,499,616 Retained earnings 781400 397152 Total stockholders’ equity 2,261,228 1,912,215 Total liabilities and stockholders’ equity 3,615,789 3,197,887 Grounds Keeper Consolidated Statements of Operations (Dollars in thousands except per share data) 2012 2011 Net sales 3,889,426 2,642,390 Cost of sales 2,589,799 1,746,274 Gross profit 1,299,627 896,116 Selling and operating expenses 481,493 348,696 General and administrative expenses 219,010 187,016 Operating income 599,124 360,404 Interest expense 22,983 57,657 Income before income taxes 576,141 302,747 Income tax expense 212,641 101,699 Net Income 363,500 201,048 Basic income per share: Average shares outstanding 154,933,948 146,214,860 Earnings per common share

Answer 1

Capital structure of the company can be estimated using the debt/equity ratio.

Debt equity ratio = total debt/total equity

= total liabilities/total equity

	2012	2011
Total liabilities	1,354,561.00	1,285,672.00
Total equity	2,261,228.00	1,912,215.00
Debt/equity ratio = total liabilities/total equity	59.90%	67.23%

We can also compute debt/total capital or debt/total asset ratio:

	2012	2011
Total liabilities	1,354,561.00	1,285,672.00
Total equity	2,261,228.00	1,912,215.00
Total assets	3,615,789.00	3,197,887.00
Debt/asset ratio = Total debt/total asset	37.46%	40.20%

From the above two ratios we can see that the company is not too leveraged and in 2012 just 37.46% of its total assets was financed by debt. In other words 62.54% of its total assets was financed by equity in 2012. We can also see that the company's use of leverage fell in 2012 when compared to 2011 when the debt asset ratio was higher at 40.20%.

Working capital = current assets - current liabilities

	2012	2011
Total current assets	1,322,868.00	1,121,133.00
Total current liabilities	519,987.00	471,374.00
Working capital	802,881.00	649,759.00

As we can see that the company's working capital improved in 2012 from 2011. This is an indication of improving liquidity situation.