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Comparative financial statement data of Lannister Inc. are as follows: Lannister Inc. Comparative Income Statement Years...

Comparative financial statement data of Lannister Inc. are as follows:

Lannister Inc.
Comparative Income Statement
Years Ended December 31, 2016 and 2015
	2016	2015
Net sales	$687,000	$595,000
Cost of goods sold	375,000	276,000
Gross profit	312,000	319,000
Operating expenses	129,000	142,000
Income from operations	183,000	177,000
Interest expense	37,000	45,000
Income before income tax	146,000	132,000
Income tax expense	36,000	51,000
Net income	$110,000	$81,000

Lannister Inc.
Comparative Balance Sheet
December 31, 2016 and 2015
	2016	2015	2014
Current assets:
Cash	$45,000	$49,000
Current receivables, net	212,000	158,000	$200,000
Inventories	297,000	281,000	181,000
Prepaid expenses	4,000	29,000
Total current assets	558,000	517,000
Property, plant and equipment, net	285,000	277,000
Total assets	$843,000	$794,000	$700,000
Accounts payable	150,000	105,000	112,000
Other current liabilities	135,000	188,000
Total current liabilities	$285,000	$293,000
Long-term liabilities	243,000	231,000
Total liabilities	528,000	524,000
Common shareholders’ equity, no par	315,000	270,000	199,000
Total liabilities and shareholders’ equity	$843,000	$794,000

Other information:

Market price of Lannister common stock: $102.17 at December 31, 2016; and $77.01 at December 31, 2015.
Common shares outstanding: 18,000 during 2016 and 17,500 during 2015.
All sales on credit.

Compute the following ratios for 2016 and 2015
- Current ratio
- Quick ratio (acid test)
- Receivables turnover and days’ sales outstanding (rounded to the nearest whole day)
- Inventory turnover and days inventory outstanding (rounded to the nearest whole day)
- Accounts payable turnover and days’ payable outstanding (rounded to the nearest whole day).
- Cash conversion cycle (in days)
- Times-interest-earned ratio
- Return on assets
- Return on common shareholders’ equity
- Earnings per share of common stock
- Price/earnings ratio.
Decide whether (a) Lannister’s financial position improved or deteriorated during 2016 and (b) the investment attractiveness of Lannister’s common stock appears to have increased or decreased.

Expert Solution

Current ratio = Current assets / Current Liabilities

2016 = 558,000 / 285,000 = 1.96

2015 = 517,000 / 293,000 = 1.76

Quick ratio = Quick Assets / Current Liabilities

2016 = (45000 + 212000 ) / 285,000 = 0.902

2015 = ( 49000 + 158000 ) / 293000 = 0.706

Receivables turnover = Sales / Avg. Receivables

2016 = 687,000 / ( 212,000 + 158000 ) / 2 = 687000 / 185000 = 3.71

2015 = 595,000 / ( 158000 + 200000 ) / 2 = 595000 / 179000 = 3.32

Days’ Sales Outstanding = 365 / Receivables turnover

2016 = 365 / 3.71 = 98.38 Days

2015 = 365 / 3.32 = 109.94 Days

Inventory turnover = Cost of goods sold / Avg. Inventory

2016 = 375,000 / ( 297,000 + 281000 ) / 2 = 375000 / 289000 = 1.30

2015 = 276,000 / ( 281000 + 181,000 ) / 2 = 276000 / 231000 = 1.19

Days Inventory Outstanding = 365 / Inventory turnover

2016 = 365 / 1.30 = 280.77 Days

2017 = 365/ 1.19 = 306.72 Days

Accounts payable turnover = Cost of goods sold / Avg. Accounts Payables

2016 = 375,000 / ( 150,000 + 105000 ) / 2 = 375000 / 127500 = 2.94

2015 = 276,000 / ( 105000 + 112,000 ) / 2 = 276000 / 108500 = 2.54

Days’ Payable Outstanding = 365 / Accounts payable turnover

2016 = 365 / 2.94 = 124.15 Days

2015 = 365 / 2.54 = 143.7 Days

Cash conversion cycle = Days Inventory Outstanding + Days’ Sales Outstanding - Days’ Payable Outstanding

2016 = 280.77 + 98.38 - 124.15 = 255 Days

2015 = 306.72 + 109.94 - 143.7 = 272.96 Days

Times-interest-earned = Income from operations / Interest expense

2016 = 183,000 / 37000 = 4.95

2015 = 177,000 / 45000 = 3.93

Return on assets = Net Income / Avg. Total assets

2016 = 110,000 / ( 843,000 + 794000 ) / 2 = 110000 / 818500 = 13.44%

2015 = 81000 / ( 794000 + 700000 ) / 2 = 81000 / 747000 = 10.84%

Return on common shareholders’ equity = Net Income / Avg. Total common shareholders’ equity

2016 = 110000 / ( 315,000 + 270000 ) / 2 = 110000 / 292500 = 37.61%

2015 = 81000 / ( 270000 + 199000 ) / 2 = 81000 / 234500 = 34.54%

Earnings per share of common stock = Net Income / Common shares outstanding

2016 = 110000 / 18000 = $6.11

2015 = 81000 / 17500 = $4.63

Price/earnings ratio. = Market Price / Earnings per share

2016 = 102.17 / 6.11 = 16.72

2015 = 77.01 / 4.63 = 16.63

Lannister’s financial position has improved in 2016 and the investment attractiveness have increased .

ekkarill92 answered 2 years ago

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