Question

Basic Financial Ratios
The accounting staff of CCB Enterprises has completed the financial statements for the 2017 calendar year. The statement of income for the current year and the comparative statements of financial position for 2017 and 2016 follow.
CCB Enterprises
Statement of Income
For the Year Ended December 31, 2017
(thousands omitted)
Revenue:
Net sales	$800,000
Other	60,000
Total revenue	$860,000
Expenses:
Cost of goods sold	$540,000
Research and development	25,000
Selling and administrative	155,000
Interest	20,000
Total expenses	$740,000
Income before income taxes	$120,000
Income taxes	48,000
Net income	$72,000
CCB Enterprises
Comparative Statements of Financial Position
December 31, 2017 and 2016
(thousands omitted)
	2017	2016
Assets
Current assets:
Cash and short-term investments	$26,000	$21,000
Receivables, less allowance for doubtful accounts
($1,100 in 2017 and $1,400 in 2016)	48,000	50,000
Inventories, at lower of FIFO cost or market	65,000	62,000
Prepaid items and other current assets	5,000	3,000
Total current assets	$144,000	$136,000
Other assets:
Investments, at cost	$106,000	$106,000
Deposits	10,000	8,000
Total other assets	$116,000	$114,000
Property, plant, and equipment:
Land	$12,000	$12,000
Buildings and equipment, less accumulated depreciation
($126,000 in 2017 and $122,000 in 2016)	268,000	248,000
Total property, plant, and equipment	$280,000	$260,000
Total assets	$540,000	$510,000
Liabilities and Owners’ Equity
Current liabilities:
Short-term loans	$22,000	$24,000
Accounts payable	72,000	71,000
Salaries, wages, and other	26,000	27,000
Total current liabilities	$120,000	$122,000
Long-term debt	$160,000	$171,000
Total liabilities	$280,000	$293,000
Owners’ equity:
Common stock, at par	$44,000	$42,000
Paid-in capital in excess of par	64,000	61,000
Total paid-in capital	$108,000	$103,000
Retained earnings	152,000	114,000
Total owners’ equity	$260,000	$217,000
Total liabilities and owners’ equity	$540,000	$510,000
Required:
1. Calculate the following financial ratios for 2017 for CCB Enterprises:
Round items a, b, h, j, and k to the nearest whole number. Round all other amounts to two decimal places. Assume a 360-day year.
a.  Times interest earned	7	to 1	correct
b.  Return on total assets	16	%	correct
c.  Return on common stockholders' equity	30.19	%	correct
d.  Debt-to-equity ratio (at December 31, 2017)	1.08	to 1	correct
e.  Current ratio (at December 31, 2017)	1.2	to 1	correct
f.  Quick (acid-test) ratio (at December 31, 2017)	1.49	to 1	incorrect
g.  Accounts receivable turnover ratio (Assume that all sales are on credit.)	16.3	times	incorrect
h.  Number of days' sales in receivables	22.08	days	incorrect
i.  Inventory turnover ratio (Assume that all purchases are on credit.)	8.5	times	correct
j.  Number of days' sales in inventory	42.35	days	incorrect
k.  Number of days in cash operating cycle	64.43	days	incorrect

Answer 1

f	quick ratio	quick assets/current liabilities	74000/120000	0.62
	quick assets	total of current assets-prepaid items-inventory	144000-65000-5000	74000
	current liability			120000
g	Accounts receivable turnover ratio	sales/average accounts receivables	800000/49000	16.33
	sales			800000
	average accounts receivables	(opening+ closing)/2	(48000+50000)/2	49000
h	no of days sales in receivables	360/accounts receivables turnover ratio	360/16.33	22
I	inventory turnover ratio	cost of goods sold/average inventory	540000/63500	8.50
	average inventory	(opening+ closing)/2	(65000+62000)/2	63500
J	no of days sales in inventory	360/inventory turnover ratio	360/8.5	42
K	no of days in cash operating cycle	no of days sales in receivables + no of days in inventory	22+42	64