Question

Income Stmt info:                                     2018                        2019

Sales                                                          $1,000,000               $1,050,000

less Cost of Goods Sold:                           400,000                    432,000

Gross Profit                                                600,000                 618,000

Operating Expenses                                350,000                   365,750

Earnings before Interest & Taxes               250,000                 252,250

Interest exp                                             20,000                      20,400

earnings before Taxes                                230,000                    231,850

Taxes                                                       69,000                     69,555

Net Income                                              $161,000                 $162,295

Balance Sheet info:                   12/31/2018               12/31/2019

Cash                                        25,000                     $30,000

Accounts Receivable                 50,000                     $54,000

Inventory                                 125,000                 $130,000

Total Current Assets                 $200,000                 $214,000

Fixed Assets (Net)                    $300,000                 $318,000

Total Assets                             $500,000                 $532,000

Current Liabilities                     $110,000                $119,900

Long Term Liabilities                 $180,000                $175,000

Total Liabilities                        $290,000                 $294,900

Stockholder's Equity                 $210,000                $237,100

Total Liab & Equity:                 $500,000                 $532,000

Compute each of the following ratios for 2018 and 2019 and indicate whether each ratio was getting "better" or "worse" from 2018 to 2019 and was "good" or "bad" compared to the Industry Avg in 2019                                                         (round all numbers to 2 digits past the decimal place)  

                2018        2019        Getting Better or Getting Worse? 2019 Industry Avg     "Good" or "Bad" compared to Industry Avg

Profit Margin                                                                                           0.11       

Current Ratio                                                                                            1.90       

Quick Ratio                                                                                              0.66       

Return on Assets                                                                                       .28         

Debt to Assets                                                                                          .50         

Receivables turnover                                                                                 18.00     

Avg. collection period*                                                                             15.50     

Inventory Turnover**                                                                                9.25       

Return on Equity                                                                                       0.55       

Times Interest Earned                                                                                13.20      

                                                                               

*Assume a 360 day year                                                                            **Inventory Turnover can be computed 2 different ways. Use the formula listed in the text                                                                           (the one the text indicates many credit reporting agencies generally use)                        

Answer 1

Answer :

	2018	2019	getting Better Or Getting Worse	Good or Bad when compared
Profit margin = Net income / Sales	(161000 / 1,000,000) = 0.161	(162,295 / 1,050,000) = 0.1546	Getting Worse	Good
Current Ratio = Current Assets / Current Liabilities	(200,000 / 110,000) =1.82	(214,000 / 119,900) = 1.78	Getting worse	Bad
Quick Ratio = Quick Assets / current liabilities	(75,000 / 110,000) =0.68	(84,000 / 119,900) = 0.7	Getting Better	Good
Return on Assets = Net income / Total Assets	(161,000 / 500,000) = 0.32	(162,295 / 532,000) = 0.31	Getting Worse	Good
Debt To Assets = Total Debt / Total Assets	(290,000 / 500,000) = 0.58	(294,900 / 532,000) = 0.55	Getting Worse	Good
Receivables Turnover = Credit Sales / Accounts Receivable	(1,000,000 / 50,000) = 20	(1,050,000 / 54,000) = 19.44	Getting worse	Good
Average Collection period = 360 days / receivable turnover ratio	(360 / 20) = 18	(360 / 19.44) = 18.5	Getting Worse	Bad
Inventory Turnover = sales / inventory	(1,000,000/125000) = 8	(1,050,000 / 130,000) = 8.0769	Getting Worse	Good
Return On equity = Net Income / Share holders equity	(161,000 / 210,000) = 0.77	(162,295 / 237,100) = 0.68	Getting Worse	Good
Times interest Earned = EBIT / interest Expense	(250,000 / 20,000) = 12.5	(252,250 / 20,400) = 12.37	Getting worse	Bad