BUSI 320 Comprehensive Problem 1 Use the following information to answer the questions on page 2 below: (Note: all sales are...

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BUSI 320 Comprehensive Problem 1

Use the following information to answer the questions on page 2 below: (Note: all sales are credit sales)

Income Stmt info:	2015	2016
Sales	$ 1,000,000	$ 1,050,000
less Cost of Goods Sold:	400,000	424,000
Gross Profit	600,000	626,000
Operating Expenses	350,000	365,750
Earnings before Interest & Taxes	250,000	260,250
Interest exp	25,000	25,500
Earnings before Taxes	225,000	234,750
Taxes	90,000	93,900
Net Income	$ 135,000	$ 140,850

Balance Sheet info:	12/31/2015	12/31/2016
Cash	25,000	$ 30,000
Accounts Receivable	50,000	$ 51,000
Inventory	125,000	$ 137,500
Total Current Assets	$ 200,000	$ 218,500
Fixed Assets (Net)	$ 300,000	$ 315,000
Total Assets	$ 500,000	$ 533,500

Current Liabilities	$ 110,000	$ 117,700
Long Term Liabilities	$ 180,000	$ 183,000
Total Liabilities	$ 290,000	$ 300,700
Stockholder's Equity	$ 210,000	$ 232,800
Total Liab & Equity:	$ 500,000	$ 533,500

Compute each of the following ratios for 2015 and 2016, and indicate whether each ratio was getting “better” or “worse” from 2015 and 2016 and was “good” or “bad” compared to the Industry Avg in 2016. (Round all numbers to 2 digits past the decimal place.)

		2015		2016		Getting Better or Getting Worse?		2016 Industry Avg		"Good" or "Bad" compared to Industry Avg
Profit Margin		1.35	0.13		Better		0.11		Bad
Current Ratio		1.82	1.86		Better		1.90		Good
Quick Ratio		0.68	0.69		Better		0.66		Bad
Return on Assets		2.70	0.26		Better		.28		Bad
Debt to Assets		0.58	0.56		Worse		.50		Good
Receivables turnover		20.00	20.59		Better		18.00		Bad
Avg. collection period*		18.48	17.48		Better		21.20		Bad
Inventory Turnover**		8.00	7.64		Worse		8.25		Good
Return on Equity		0.64	0.61		Better		0.55		Good
Times Interest Earned		10	10.21		Worse		11.15		Bad

	*Assume a 360-day year
	Inventory Turnover can be computed 2 different ways. Use the formula listed in the text (the one the text indicates many credit reporting agencies generally use). NOTE TO TUTOR:** According to our text, Dun & Bradstreet and other credit reporting agencies generally show turnover using sales in the numerator (located at bottom of pg 63). I have a BAII Plus calculator....but I have NO idea how to use the thing.

Current ratio = Current assets / Current liabilities

2015= 200 000/ 110,000 =1.82

2016= 218,500 /117,700=1.86

Compared to the industry average of 1.90 the company is more liquid [good]

Profit margin = Net income / sales

2015: 135,000/1,000,000=1.35

2016: 140,850 / 1,050,000 = 0.13

Compared to industry avg of 0.11 the company's is less bad

Quick ratio = cash+account rec. / Current liabilities

25,000+50,000/110,000=0.68

=30,000+51,000/117,700=0.69

Improved. Compared to the industry avg of 0.66 'bad'

Return on assets = net income / total assets

2015=135,000/500,000=2.7

2016= 140,850/533,500=0.26

Getting better. Compared to the industry avg of .28 bad.

Debt to assets = total debt/ total assets

2015=290,000/500,000=0.58

2016=300,700/533,500=0.56

Receivable turnover = sales / accnt receivable

=1,000,000/50,000= 20.00

=1,050,000/51,000=20.59

Avg collection period = 360 days / receivable turn over

=360/20.00=18.00

=360/20.59=17.48

Inventory turnover=sales/inventory

=1,000,000/125,000= 8.00

=1,050,000/137,500=7.64

Return on equity = net income / Equity

=135,000/210,000=0.64

=140,850/232,800=0.61

Time interest earned = Earnings before interest and taxes / interest exp

=250,000/25,000 =10

=260,250/25,500=10.21

10 years ago
999999.99

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