Question

The comparative financials of Stargel Inc is as follows. At December 31, 2015, Stargel inventory was $200 and the total equity was $165. Stargel Inc. Comparative Balance Sheet December 31, 2017 and 2016 2017 2016 Assets Cash............................................................................ 400 300 Accounts Receivable................................................. 290 350 Inventory.................................................................... 150 220 Total Assets..................................................... 840 870 Liabilities Accounts Payable...................................................... 140 75 Loan Payable.............................................................. 450 600 Total Liabilities................................................ 590 375 Stockholders’ Equity Common Stock.......................................................... 40 40 Retained Earnings..................................................... 210 155 Total Stockholders’ Equity................................ 250 195 Total Liabilities and Stockholders’ Equity........... 840 870 Stargel Inc. Comparative Income Statement For the Years ending December 31, 2017 and 2016 2017 2016 Sales Revenue............................................................ 1,200 1,000 Less Cost of Goods Sold............................................ 800 600 Gross Profit................................................................ 400 400 Insurance Expenses................................................... 200 190 Interest Expense........................................................ 60 80 Net Income................................................................ 140 130

Instructions:

a.    Prepare a horizontal analysis of Stargel’s financial statements indicating the increase and decrease.

b.    Prepare a vertical analysis of Stargel’s financial statements.

c.     Determine the inventory turnover for both years

d.    Determine the rate of return on stockholders’ equity ratio for both years

Answer 1

	a.	HORIZONTAL ANALYSIS
			A	B	C=A-B	D=(C/B)*100
			Dec 2017	Dec 2016	Increase or (decrease)
					Amount	Percent
		Cash	$400	$300	$100	33.33%
		Receivable	$290	$350	($60)	-17.14%
		Inventory	$150	$220	($70)	-31.82%
		Assets	$840	$870	($30)	-3.45%
		Total Assets	$1,680	$1,740	($60)	-3.45%
		Payable (Loan)	$140	$75	$65	86.67%
		Payable (Total)	$450	$600	($150)	-25.00%
		Liabilities	$590	$375	$215	57.33%
		Stockholders Equity (Common stock)	$40	$40	$0	0.00%
		Retained Earnings	$210	$155	$55	35.48%
		Total stockholders equity	$250	$195	$55	28.21%
		Total liabilities and stockholders equity	$840	$870	($30)	-3.45%
			A	B	C=A-B	D=(C/B)*100
			YEAR 2017	YEAR2016	Increase or (decrease)
					Amount	Percent
		Revenue	$1,200	$1,000	$200	20.00%
		Cost of goods sold	$800	$600	$200	33.33%
		Profit	$400	$400	$0	0.00%
		Insurance expense	$200	$190	$10	5.26%
		Interest expense	$60	$80	($20)	-25.00%
		Net Income	$140	$130	$10	7.69%
	b	VERTICAL ANALYSIS
			A	B=(A/total assets)*100	C	D=(C/total assets)*100
			Dec 31 2017		Dec 31, 2016
			Amount	Percent	Amount	Percent
		Cash	$400	23.81%	$300	17.24%
		Receivable	$290	17.26%	$350	20.11%
		Inventory	$150	8.93%	$220	12.64%
		Assets	$840	50.00%	$870	50.00%
		Total Assets	$1,680	100.00%	$1,740	100.00%
		Payable (Loan)	$140	8.33%	$75	4.31%
		Payable (Total)	$450	26.79%	$600	34.48%
		Liabilities	$590	35.12%	$375	21.55%
		Stockholders Equity (Common stock)	$40	2.38%	$40	2.30%
		Retained Earnings	$210	12.50%	$155	8.91%
		Total stockholders equity	$250	14.88%	$195	11.21%
		Total liabilities and stockholders equity	$840	50.00%	$870	50.00%
			YEAR 2017		YEAR 2016
			A	B=(A/Revenue)*100	C	D=(C/Revenue)*100
			YEAR 2017		YEAR2016
			Amount	Percent	Amount	Percent
		Revenue	$1,200	100.00%	$1,000	100.00%
		Cost of goods sold	$800	66.67%	$600	60.00%
		Profit	$400	33.33%	$400	40.00%
		Insurance expense	$200	16.67%	$190	19.00%
		Interest expense	$60	5.00%	$80	8.00%
		Net Income	$140	11.67%	$130	13.00%
	c	INVENTORY TURNOVER	Year2017	Year2016
	A	Sales	$1,200	$1,000
	B	Beginning Inventory	$220	$200
	C	Ending Inventory	$150	$220
	D=(B+C)/2	Average Inventory	$         185	$                 210
	E=A/D	INVENTORY TURNOVER	6.49	4.76
	d	RATE OF RETURN ON STOCKHOLDERS EQUITY
			Year2017	Year2016
	A	Net Income	$140	$130
	B	Beginning stockholders equity	$195	$165
	C	Ending stockholders equity	$250	$195
	D=(B+c)/2	Average stockholders equity	$         223	$                 180
	E=A/D	Rate of Return on stockholder equity	0.63	0.72
		Rate of return in percent	62.92%	72.22%