Question

The condensed financial statements of Murawski Company for the years 2014 and 2015 are presented below.

MURAWSKI COMPANY Balance Sheets December 31
		2015			2014
Current assets
Cash and cash equivalents		$ 364			$ 367
Accounts receivable (net)		387			466
Inventory		373			446
Prepaid expenses		140			131
Total current assets		1,264			1,410
Property, plant, and equipment		363			434
Investments		11			11
Intangibles and other assets		530			545
Total assets		$2,168			$2,400
Current liabilities		$ 801			$ 881
Long-term liabilities		355			406
Stockholders’ equity—common		1,012			1,113
Total liabilities and stockholders’ equity		$2,168			$2,400

MURAWSKI COMPANY Income Statements For the Years Ended December 31
		2015			2014
Sales revenue		$3,921			$3,800
Costs and expenses
Cost of goods sold		887			969
Selling & administrative expenses		2,319			2,384
Interest expense		25			22
Total costs and expenses		3,231			3,375
Income before income taxes		690			425
Income tax expense		139			145
Net income		$ 551			$ 280

Compute the following ratios for 2015 and 2014. (Round answers to 1 decimal place, e.g. 1.6 or 1.6%.)

(a)		Current ratio.
(b)		Inventory turnover. (Inventory on 12/31/13 was $335.)
(c)		Profit margin.
(d)		Return on assets. (Assets on 12/31/13 were $1,900.)
(e)		Return on common stockholders’ equity. (Equity on 12/31/13 was $903.)
(f)		Debt to assets ratio.
(g)		Times interest earned.

		2015			2014
Current ratio			:1			:1
Inventory turnover			times			times
Profit margin ratio			%			%
Return on assets			%			%
Return on common stockholders’ equity			%			%
Debt to assets ratio			%			%
Times interest earned			times			times

Answer 1

(1)

current ratio = current assets/current liabilities

for 2015:

= $1264/$801 = 1.6 times

for 2014:

= $1410/$881 = 1.6 times

(2)

inventory turnover = cost of goods sold/average inventory

for 2015:

= $887/{($373 + $446/2} = 2.2 times

for 2014:

= $969/{($446 + $335/2} = 2.5 times

(3)

profit margin ratio = net income/sales revenue

for 2015:

= $551/$3921 = 14.1%

for 2014:

= $280/$3800 = 7.4%

(4)

return on assets = net income/average total assets

for 2015:

= $551/{($2168 + $2400)/2} = 24.1%

for 2014:

= $280/{($2400 + $1900)/2} = 13.0%

(5)

return on common stockholders equity = net income/average common stockholders equity

for 2015:

= $551/{($1012 + $1113)/2} = 51.9%

for 2014:

= $280/{($1113 + $903)/2} = 27.8%

(6)

debt to asset ratio = total liabilities/total assets

for 2015:

= ($801 + $355)/$2168 = 53.3%

for 2014:

= ($881 + $406)/$2400 = 53.6%

(7)

times interest earned = earning before interest & taxes/interest expense

for 2015:

= $25/($690 + $25) = 28.6 times

for 2014:

= $22/($425 + $22) = 20.3 times