Question

In: Finance

Dec. 31, 2015 Dec. 31, 2014 Assets Cash and cash equivalents 129,852 593,175 Accounts receivable, net...

Dec. 31, 2015 Dec. 31, 2014
Assets
Cash and cash equivalents 129,852 593,175
Accounts receivable, net 433,638 279,835
Inventories 783,031 536,714
Prepaid expenses and other current assets 152,242 87,177
Deferred income taxes 52,498
Total current assets 1,498,763 1,549,399
Property and equipment, net 538,531 305,564
Goodwill 585,181 123,256
Intangible assets, net 75,686 26,230
Deferred income taxes 92,157 33,570
Other long-term assets 78,582 57,064
Total assets 2,868,900 2,095,083
Liabilities and Stockholders Equity
Accounts payable 200,460 210,432
Accrued expenses 192,935 147,681
Current maturities of long term-debt 42,000 28,951
Other current liabilities 43,415 34,563
Total current liabilities 478,810 421,627
Long-term debt, net of current maturities 352,000 255,250
Long-term line of credit, noncurrent 275,000 0
Other long-term liabilities 94,868 67,906
Total liabilities 1,200,678 744,783
Stockholders' equity
Additional paid-in capital 636,630 508,350
Retained earnings 1,076,533 856,687
Accumulated other comprehensive loss -45,013 -14,808
Total stockholders' equity 1,668,150 1,350,229
Total liabilities and stockholders' equity 2,868,828 2,095,012

A) Compute the current ratio and quick ratio for 2015 and 2014. Comment on any observed trends.

B) Compute times interest earned and liabilities to equity ratios for 2015 and 2014. Comment on any noticeable changes.

C) Summarize your findings about the company's liquidity and solvency. Do you have any concerns about its ability to met its debt obligations?

Solutions

Expert Solution

1. Current Ratio is a comparison of current assets to current liabilities, calculated by dividing the total current assets by total current liabilities.

Thus for 2014, Total Current Asset: 1,549,399

Total Current Liabilities: 421,627

Current Ratio for 2014 would be: = 3.67:1

For 2015, Total Current Asset:1,498,763

Total Current Liabilities: 478,810

Current Ratio for 2015 would be: = 3.13:1

2. Quick assets are current assets that can be converted to cash within 90 days or in the short-term. Cash, cash equivalents, short-term investments or marketable securities, and current accounts receivable are considered quick assets. The formula as per the question above would be: (Cash and cash equivalents+Accounts receivable, net/Total Current Liabilities)

Thus for 2014 =

(593,175+279,835)/421,627

= 2.071

For 2015

(129,852+433,638)/478,810 = 1.177

3.

1. Account receivables have increased significantly in 2015, impacting the cash position of the company.
2. Prepaid expenses have risen sharply in 2015, indicating good future planning related to expenses.
3. Significant rise in Assets (Goodwill, intangible assets and Property & instruments)

4. Decline in liquidity rations from 2014 to 2015, however both current and quick ratios are at comfortable levels.

5. In 2015, the firm has taken a long term credit line of 275,000, impacting the long term liquidity situation of the company,

jeff jeffy answered 2 years ago
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