Question

1. Bethesda Mining Company reports the following balance sheet information for 2015 and 2016.

BETHESDA MINING COMPANY Balance Sheets as of December 31, 2015 and 2016
	2015				2016					2015				2016
Assets									Liabilities and Owners’ Equity
Current assets									Current liabilities
Cash	$	29,266			$	38,098			Accounts payable	$	193,922			$	201,611
Accounts receivable		58,281				78,639			Notes payable		89,020				140,588
Inventory		133,148				199,946			Total	$	282,942			$	342,199
Total	$	220,695			$	316,683			Long-term debt	$	245,000			$	181,750
									Owners’ equity
									Common stock and paid-in surplus	$	210,000			$	210,000
Fixed assets									Accumulated retained earnings		140,100				172,012
Net plant and equipment	$	657,347			$	589,278			Total	$	350,100			$	382,012
Total assets	$	878,042			$	905,961			Total liabilities and owners’ equity	$	878,042			$	905,961

Based on the balance sheets given for Bethesda Mining, calculate the following financial ratios for each year:

a. Current ratio. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

	Current ratio
2015		times
2016		times

b. Quick ratio. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

	Quick ratio
2015		times
2016		times

c. Cash ratio. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

	Cash ratio
2015		times
2016		times

d. Debt−equity ratio and equity multiplier. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

	Debt−equity ratio				Equity multiplier
2015			times				times
2016			times				times

e. Total debt ratio. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

	Total debt ratio
2015			times
2016			times

2. Some recent financial statements for Smolira Golf, Inc., follow.

SMOLIRA GOLF, INC. Balance Sheets as of December 31, 2015 and 2016
	2015				2016					2015				2016
Assets									Liabilities and Owners’ Equity
Current assets									Current liabilities
Cash	$	2,971			$	2,907			Accounts payable	$	2,193			$	2,680
Accounts receivable		4,727				5,701			Notes payable		1,790				2,196
Inventory		12,638				13,702			Other		98				115
Total	$	20,336			$	22,310			Total	$	4,081			$	4,991
									Long-term debt	$	14,100			$	16,860
									Owners’ equity
									Common stock and paid-in surplus	$	42,000			$	42,000
Fixed assets									Accumulated retained earnings		15,694				39,696
Net plant and equipment	$	55,539			$	81,237			Total	$	57,694			$	81,696
Total assets	$	75,875			$	103,547			Total liabilities and owners’ equity	$	75,875			$	103,547

SMOLIRA GOLF, INC. 2016 Income Statement
Sales				$	188,970
Cost of goods sold					127,003
Depreciation					5,253
EBIT				$	56,714
Interest paid					1,350
Taxable income				$	55,364
Taxes					19,377
Net income				$	35,987
Dividends	$	11,985
Retained earnings		24,002

Find the following financial ratios for Smolira Golf (use year-end figures rather than average values where appropriate): (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Enter the profitability ratios as a percent.)

		2015			2016
Short-term solvency ratios
a.	Current ratio		times			times
b.	Quick ratio		times			times
c.	Cash ratio		times			times
Asset utilization ratios
d.	Total asset turnover					times
e.	Inventory turnover					times
f.	Receivables turnover					times
Long-term solvency ratios
g.	Total debt ratio		times			times
h.	Debt−equity ratio		times			times
i.	Equity multiplier		times			times
j.	Times interest earned ratio					times
k.	Cash coverage ratio					times
Profitability ratios
l.	Profit margin					%
m.	Return on assets					%
n.	Return on equity					%

Answer 1

Answer to Question 1:

Answer a.

2015:

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $220,695 / $282,942
Current Ratio = 0.78 times

2016:

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $316,683 / $342,199
Current Ratio = 0.93 times

Answer b.

2015:

Quick Ratio = (Cash + Accounts Receivable) / Current Liabilities
Quick Ratio = ($29,266 + $58,281) / $282,942
Quick Ratio = 0.31 times

2016:

Quick Ratio = (Cash + Accounts Receivable) / Current Liabilities
Quick Ratio = ($38,098 + $78,639) / $342,199
Quick Ratio = 0.34 times

Answer c.

2015:

Cash Ratio = Cash / Current Liabilities
Cash Ratio = $29,266 / $282,942
Cash Ratio = 0.10 times

2016:

Cash Ratio = Cash / Current Liabilities
Cash Ratio = $38,098 / $342,199
Cash Ratio = 0.11 times

Answer d.

2015:

Total Debt = Current Liabilities + Long-term Debt
Total Debt = $282,942 + $245,000
Total Debt = $527,942

Debt-Equity Ratio = Total Debt / Total Equity
Debt-Equity Ratio = $527,942 / $350,100
Debt-Equity Ratio = 1.51 times

Equity Multiplier = Total Assets / Total Equity
Equity Multiplier = $878,042 / $350,100
Equity Multiplier = 2.51 times

2016:

Total Debt = Current Liabilities + Long-term Debt
Total Debt = $342,199 + $181,750
Total Debt = $523,949

Debt-Equity Ratio = Total Debt / Total Equity
Debt-Equity Ratio = $523,949 / $382,012
Debt-Equity Ratio = 1.37 times

Equity Multiplier = Total Assets / Total Equity
Equity Multiplier = $905,961 / $382,012
Equity Multiplier = 2.37 times

Answer e.

2015:

Total Debt Ratio = Total Debt / Total Assets
Total Debt Ratio = $527,942 / $878,042
Total Debt Ratio = 0.60 times

2016:

Total Debt Ratio = Total Debt / Total Assets
Total Debt Ratio = $523,949 / $905,961
Total Debt Ratio = 0.58 times