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The condensed financial statements of Sheridan Company for the years 2016 and 2017 are presented as follows. (Amounts in thousands.)

SHERIDAN COMPANY Balance Sheets December 31
		2017		2016
Current assets
Cash and cash equivalents		$330		$360
Accounts receivable (net)		660		590
Inventory		660		590
Prepaid expenses		120		160
Total current assets		1,770		1,700
Investments		200		200
Property, plant, and equipment (net)		420		380
Intangibles and other assets		530		510
Total assets		$2,920		$2,790
Current liabilities		$1,090		$980
Long-term liabilities		610		580
Stockholders’ equity—common		1,220		1,230
Total liabilities and stockholders’ equity		$2,920		$2,790

SHERIDAN COMPANY Income Statements For the Year Ended December 31
		2017		2016
Sales revenue		$4,000		$3,660
Costs and expenses
Cost of goods sold		1,145		1,080
Selling & administrative expenses		2,400		2,330
Interest expense		25		20
Total costs and expenses		3,570		3,430
Income before income taxes		430		230
Income tax expense		129		69
Net income		$ 301		$ 161

Compute the following ratios for 2017 and 2016. (Round current ratio and inventory turnover to 2 decimal places, e.g. 1.83 and all other answers to 1 decimal place, e.g. 1.8 or 12.6%.)

(a)		Current ratio.
(b)		Inventory turnover. (Inventory on 12/31/15 was $410.)
(c)		Profit margin.
(d)		Return on assets. (Assets on 12/31/15 were $2,230.)
(e)		Return on common stockholders’ equity. (Stockholders’ equity on 12/31/15 was $980.)
(f)		Debt to assets ratio.
(g)		Times interest earned.

		2017			2016
Current ratio.			:1			:1
Inventory turnover.			times			times
Profit margin.			%			%
Return on assets.			%			%
Return on common stockholders’ equity.			%			%
Debt to assets ratio.			%			%
Times interest earned.			times			times

Answer 1

Answer :-

a. Current Ratio = Current assets/ Current liabilities

For 2017 = $1,770 / $1,090 = 1.62

For 2016 = $1,700 / $980 = 1.73

b. Inventory Turnover = Cost of goods sold / Average inventory

For 2017 = $1,145 / ($660+$590)/2 = 1.832

For 2016 = $1,080 / ($590+$410)/2 = 2.16

c. Profit Margin = Net Income / Sales

For 2017 = $301/$4,000 = 7.525%

For 2016 = $161 / $3,660 = 4.39%

d. Return on assets = Net income / Average total assets

For 2017 = $301/($2,920+$2,790)/2 = 10.54%

For 2016 = $161/($2,790+$2,230)/2 = 6.41%

e. Return on common stockholders' equity = Net Income / Average common stockholders equity

For 2017 = $301 / ($1,220 + $1,230)/2 = 24.57%

For 2016 = $161 / ($1,230 + $980)/2 = 14.57%

f. Debt to assets ratio = Total Debt / Total assets

For 2017 = $1,700 / $2,920 = 58.21%

For 2016 = $1,560 / $2,790 = 55.91%

g. Times Interest earned = EBIT / Interest expense

For 2017 = $455 / $25 = 18.2

For 2016 = $250 / $20 = 12.5

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