Question

In: Finance

Below is selected balance sheet and income statement information from Fuller Enterprises. 2017 2016 Current assets...

Below is selected balance sheet and income statement information from Fuller Enterprises.

2017

2016

Current assets

$ 26,148

$   29,879

Current liabilities

38,063

36,129

Total debt

123,896

125,545

Total Liabilities

206,493

209,242

Equity

76,434

72,613

Earnings before interest and taxes

27,777

27,476

Interest expense

3,180

3,384

Net cash flow from operating activities

18,812

18,620
  1. Compute the current ratio for each year and discuss any trend in liquidity.
  2. Compute times interest earned, liabilities-to-equity, and cash from operations to total debt ratios for each year and discuss any trends for each.

Solutions

Expert Solution

a.
Formula to calculate current ratio
Current ratio Current assets/Current liabilities
Current ratio 2016 29879/36129
Current ratio 2016 0.83
Current ratio 2017 26148/38063
Current ratio 2017 0.69
Current ratio indicates liquidity of business. The liquidity of company has decreased in 2017 as compared to 2016.
Also, company does not have sufficient current assets available to pay its current liabilities.
b.
Formula to calculate times interest earned
Times interest earned EBIT/Interest expense
Times interest earned 2016 27476/3384
Times interest earned 2016 8.12
Times interest earned 2017 27777/3180
Times interest earned 2017 8.73
The times interest earned ratio indicates the profit available to pay interest expense. The times interest earned ratio in 2017 has increased from 8.12 in 2016 to 8.73 in 2017.
Formula to calculate liabilities to equity ratio
Liabilities to equity ratio Total liabilities/Total equity
Liabilities to equity ratio 2016 209242/72613
Liabilities to equity ratio 2016 2.88
Liabilities to equity ratio 2017 206493/76434
Liabilities to equity ratio 2017 2.70
Liabilities to equity ratio indicates the proportion of total liabilities to equity. The liabilities to equity ratio has decreased in 2017 as compared to 2016.
Formula to calculate cash from operations to total debt ratio
Cash flow from operations to total debt ratio Net cash flow from operating activities/Total debt ratio
Cash flow from operations to total debt ratio 2016 18620/125545
Cash flow from operations to total debt ratio 2016 0.15
Cash flow from operations to total debt ratio 2017 18812/123896
Cash flow from operations to total debt ratio 2017 0.15
The cash flow from operations to total debt ratio is almost same for both years.

jeff jeffy answered 1 year ago
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