Question

The condensed financial statements of Murawski Company for the years 2016 and 2017 are presented below. (Amounts in thousands.)

 

 

Compute the following ratios for 2017 and 2016.

(a) Current ratio.

(b) Inventory turnover. (Inventory on 12/31/15 was $340.)

(c) Profit margin.

(d) Return on assets. (Assets on 12/31/15 were $1,900.)

(e) Return on common stockholders’ equity. (Stockholders’ equity on 12/31/15 was $900.)

(f) Debt to assets ratio.

(g) Times interest earned.

Answer 1

(a) Current ratio

Current ratio = Current Assets / Current Liabilities

	2017	2016
Current ratio	$1,380 / $900 = 1.53 : 1	$1,310 / $790 = 1.66 : 1

 

(b) Inventory turnover

Inventory turnover = Cost of goods sold / Average Inventories

	2017	2016
Average Inventories	($390 + $460) / 2 = $425	($340 + $390) / 2 = $365
Inventory turnover	$955 / $425 = 2.25 times	$890 / $365 = 2.44 times

 

(c) Profit Margin ratio

Profit margin ratio = Net Income / Sales revenue x 100

	2017	2016
Profit margin ratio	$294 / $3,800 x 100 = 7.7%	$154 / $3,460 x 100 = 4.5%

 

(d) Return on assets

Return on assets = Net Income / Average total assets x 100

	2017	2016
Average total assets	($2,210 + $2,340) / 2 = $2,275	($1,900 + $2,210) / 2 = $2,055
Return on assets	$294 / $2,275 x 100 = 12.9%	$154 / $2,055 x 100 = 7.5%

 

(e) Return on common stockholder\'s equity

Return on common stockholders\' equity = Net Income / Average common stockholders\' equity x 100

	2017	2016
Average common stockholders\' equity	($1,040 + $1,030) / 2 = $1,035	($900 + $1,040) / 2 = $970
Return on common stockholders\' equity	$294 / $1,035 x 100 = 28.4%	$154 / $970 x 100 = 15.9%

 

(f) Debt to asset ratio

Debt to asset ratio = Total Liabilities / Total Assets x 100

	2017	2016
Debt to asset ratio	($900 + $410) / $2,340 x 100 = 56.0%	($790 + $380) / $2,210 x 100 = 52.9%

 

(g) Times interest earned

Times Interest earned = (Income before income taxes + Interest expense) / Interest expense

	2017	2016
Times Interest earned	($420 + $25) / $25 = 17.8 times	($220 + $20) / $20 = 12.0 times

(a) Current ratio

Current ratio = Current Assets / Current Liabilities

	2017	2016
Current ratio	$1,380 / $900 = 1.53 : 1	$1,310 / $790 = 1.66 : 1