Question

In: Accounting

2015 2016 Sales Revenue $920,000 $840,000 Cost of Goods Sold 575,000 545,000 Interest Expense 20,000 20,000...

	2015	2016
Sales Revenue	$920,000	$840,000
Cost of Goods Sold	575,000	545,000
Interest Expense	20,000	20,000
Income Tax Expense	27,000	30,000
Net Income	61,000	52,000
Cash Flow from Operations	65,000	55,000
Capital Expenditures	65,000	55,000
Acc Receivable (net) 31 Dec	126,000	120,000
Inventory 31 Dec	196,000	160,000
Stockholders' Equity 31 Dec	450,000	400,000
Total Assets 31 Dec	750,000	675,000

Required: Calculate the following ratios for 2016. The 2015 results are given for comparative purposes. Round answers to one (1) decimal place. Use 365 days in a year.

Question	2015	2016
Accounts Receivable Turnover	8.0	Answer
Average Collection Period	45.6 days	Answer (days)
Inventory Turnover	3.61	Answer
Times-interest-earned Ratio	4.80	Answer
Operating-cash-flow-to-capital-expenditures Ratio	1.22	Answer

Expert Solution

Calculation of ratios for 2016

a) Accounts Receivable Turnover = Sales Revenue/Average Accounts Receivables

Average Accounts Receivable = (Opening Accts Receivable+Closing Accts. Receivable)/2

= ($126,000+$120,000)/2 = $123,000

Accounts Receivable Turnover = $840,000/$123,000 = 6.8

b) Average collection period = 365 days/Accounts Receivable Turnover

= 365 days/6.8 = 53.7 days

c) Inventory Turnover = Cost of goods sold/Average Inventory

Average Inventory = (Opening Inventory+Closing Inventory)/2

= ($196,000+$160,000)/2 = $178,000

Inventory Turnover = $545,000/$178,000 = 3.06

d) Times-interest-earned Ratio = Earning Before Interest and tax/Interest Expense

Earning before interest and tax = Net income+Interest Expense+Income tax expense

= $52,000+20,000+30,000 = $102,000

Interest Expense = $20,000

Times-interest-earned Ratio = $102,000/$20,000 = 5.10

e) Operating-cash-flow-to-capital-expenditures Ratio = Cash flow from operations/Capital expenditures

= $55,000/$55,000 = 1.0

ekkarill92 answered 1 year ago

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