Question

Problem 2-6A Condensed balance sheet and income statement data for Blossom Company are presented as follows.

Blossom Company Balance Sheets December 31

Assets 2017 and 2016 (respectively)

Cash $ 30,700 $ 22,700

Receivables (net) 82,100 74,100

Other current assets 102,100 85,100

Long-term investments 62,000 60,000

Property, plant, and equipment (net) 522,100 482,100

Total assets $ 799,000 724,000

Liabilities and Stockholders’ Equity

Current liabilities $ 77,700 $ 72,700

Long-term liabilities 92,100 102,100

Common stock 342,100 312,100

Retained earnings 287,100 237,100

Total liabilities and stockholders’ equity $ 799,000 $ 724,000

Blossom Company Income Statements For the Years Ended December 31 2017 2016

Sales revenue $789,000 $691,000

Cost of goods sold 440,000 400,000

Operating expenses (including income taxes) 240,000 220,000

Net income $ 109,000 $ 71,000

Additional information:

Net cash from operating activities $123,800 $58,700

Cash used for capital expenditures $47,700 $38,000

Dividends paid on common shares $59,000 $17,700

Weighted-average number of shares outstanding 33,000 30,000

Compute these values and ratios for 2016 and 2017. (Round Earnings per share to 2 decimal places, e.g. $2.78 and Current Ratio and Debt to assets ratio to 1 decimal place, e.g. 15.2. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) 2017 2016

2016 & 2017

(a) Earnings per share.

(b) Working capital.

(c) Current ratio.

(d) Debt to assets ratio.

(e) Free cash flow.

Answer 1

a) Earnings Per Share = Net Income/Weighted Average No. of Shares Outstanding

Calculation of Earnings per Share (Amounts in $)

	2017	2016
1) Net Income	109,000	71,000
2) Weighted Average No. of Shares Outstanding	33,000	30,000
3) Earnings Per Share (1/2)	3.30	2.37

Therefore earnings per share for 2017 and 2016 is $3.30 and $2.37 per share respectively.

b) Working Capital = Total Current Assets - Total Current Liabilities

Calculation of Working Capital is shown as follows:- (Amounts in $)

	2017	2016
1) Cash	30,700	22,700
2) Receivables (net)	82,100	74,100
3) Other Current Assets	102,100	85,100
4) Total Current Assets (1+2+3)	214,900	181,900
5) Total Current Liabilities	(77,700)	(72,700)
6) Working Capital (4-5)	137,200	109,200

Therefore working capital for 2017 and 2016 is $137,200 and $109,200 respectively.

c) Current Ratio = Total Current Assets/Total Current Liabilities

Calculation of Current Ratio is shown as follows:- (Amounts in $)

	2017	2016
i) Total Current Assets	214,900	181,900
ii) Total Current Liabilities	77,700	72,700
iii) Current Ratio [(i)/(ii)]	2.8	2.5

Therefore current ratio for 2017 and 2016 is 2.8 and 2.5 respectively.

d) Debt to Assets Ratio = Total Liabilities/Total Assets

Calculation of Debt to Assets Ratio is shown as follows:- (Amounts in $)

	2017	2016
i) Current Liabilities	77,700	72,700
ii) Long-term Liabilities	92,100	102,100
iii) Total Liabilities [(i)+(ii)]	169,800	174,800
iv) Total Assets	799,000	724,000
v) Debt to Assets Ratio [(iii)/(iv)]	0.2	0.2

Therefore debt to assets ratio for both 2017 and 2016 is 0.2.

e) Free Cash Flow = Cash from Operating Activities - Cash used for capital expenditures

Calculation of Free Cash Flows is shown as follows:- (Amounts in $)

	2017	2016
1) Cash from Operating Activities	123,800	58,700
2) Cash used for capital expenditures	47,700	38,000
3) Free Cash Flows (1-2)	76,100	20,700

Therefore free cash flows for 2017 and 2016 is $76,100 and $20,700 respectively.