Question

Balance Sheets as on 31st Dec 2017 & 31st Dec 2018

	31st Dec 2017	31st Dec 2018
Current Assets:
Cash	$65,000	$80,000
Accounts Receivables	$2,500,000	$4,000,000
Inventory	$1,500,000	$2,500,000
Total Current Assets	$4,065,000	$6,580,000
Fixed Assets:
Buildings	$2,000,000	$3,000,000
Furniture & office equipment	$1,100,000	$1,400,000
Good Will	$6,100,000	$5,700,000
Patents	$1,000,000	$1,100,000
Total Fixed Assets	$10,200,000	$11,200,000
Total Assets	$14,265,000	$17,780,000
Liabilities:
Current Liabilities:
Accounts Payable	$1,200,000	$1,350,000
Notes Payable	$500,000	$550,000
Interest Payable	$110,000	$125,000
Total Current Liabilities	$1,810,000	$2,025,000
Shareholder's Equity:
Common Stock	$8,655,000	$12,000,000
Retained earnings	$3,800,000	$3,755,000
Total Stockholder's equity	$8,455,000	$11,755,000
Total Liabilities & Stockholder's equity	$14,265,000	$17,780,000

Income Statements for the years ended 31st Dec 2017 & 31st Dec 2018

	31st Dec 2017	31st Dec 2018
Sales	$7,500,000	$8,600,000
Less: Cost of goods sold	$5,200,000	$6,000,000
Gross profit	$2,300,000	$2,600,000
Less: Operating expenses
General & administrative expenses	$250,000	$380,000
Selling & distribution expenses	$580,000	$600,000
Other operating expenses	$150,000	$190,000
Operating profit	$1,320,000	$1,430,000
Less: Interest expenses	$350,000	$400,000
Net income before taxes	$970,000	$1,030,000
Less: Taxes at 30%	$291,000	$309,000
Net Income after taxes	$679,000	$721,000

Calculate the following ratios for 2018 representing:

Liquidity (Current ratio, Accounts Receivable Turnover ratio)

Solvency (Debt/Equity ratio, Debt ratio)

Profitability (Return on Assets, Gross Profit Margin)

Asset Management (Inventory Turnover ratio, Fixed Assets Turnover ratio)

       (10pts)

Calculate the net tangible asset values for 2017 and 2018 and comment on them. (5pts)

Answer 1

Current ratio = current assets / current liabilties

= 6580000 / 2025000

= 3.25

Receivable Turnover ratio = Net credit sales / Average account receivables

Average account receivable = (2500000 + 4000000) / 2

= 3,250,000

Receivable Turnover ratio = 8600000/3250000 = 2.65

Debt/Equity ratio = Total Liabilities / Total Equity

= 2025000 / 11755000

= 0.1722

Debt ratio = Total liabilities / total assets

= 2025000/ 17780000

= 0.1139

Return on assets = Net income / total assets

= 721000 / 17780000

=4.055%

Gross profit margin = gross profit / net sales

= 2600000 / 8600000

= 30.23 %

Inventory turnover ratio = Net sales / Average inventory

Average inventory =(1500000 + 2500000 ) / 2

=2000000

Inventory turnover ratio = 8600000 / 2000000

= 4.30

Fixed assets turnover = Net sales / Fixed assets

= 8600000 / 11200000

= 0.7679

Net tangible assets (2018) = Total assets - intangible assets - total liabilites

= 17780000 - 5700000 - 1100000 - 2025000

= $8,955,000

Net tangible assets (2017) = Total assets - intangible assets - total liabilites

= 14265000 - 6100000 - 1000000 - 1810000

= $5,355,000

The net tangibel assets has increased since last year and hence it shows better company position since last year