The condensed financial statements of Wildhorse Co. for the years 2016 and 2017

Question

The condensed financial statements of Wildhorse Co. for the years 2016 and 2017 are presented as follows. (Amounts in thousands.) WILDHORSE CO. Balance Sheets December 31 2017 2016 Current assets $330 510 540 120 1,500 50 420 530 2,500 940 490 1,070 $2,500 $360 440 470 160 1,430 50 380 510 $2,370 $830 460 1,080 $2,370 Cash and cash equivalents Accounts receivable (net) Inventory Prepaid expenses Total current assets Investments Property, plant, and equipment (net) Intangibles and other assets Total assets Current liabilities Long-term liabilities Stockholders' equity-common Total liabilities and stockholders' equity

Explanation / Answer

Ans. 2017 2016 Current ratio 1.60:1 1.72:1 Inventory turnover 1.97 2.21 Profit margin 8.3% 5.1% Return on assets 13.2% 7.7% Return on common stockholders' equity 29.9% 17.9% Debt to assets ratio 57.2% 54.4% Time interest earned 19.4 times 14 times *Calculations: 1 Current Ratio =   Total current assets / Current liabilities 2017 1500 / 940 1.60 2016 1430 / 830 1.72 2 Inventory turnover ratio = Cost of goods sold / Average inventory 2017 995 / 505 1.97 2016 930 / 420 2.21 *Average inventory = (Ending inventory + Beginning inventory) / 2 2017 (540 + 470) / 2    =   505 (Inventory of 2017 is ending and inventory of 2016 is beginning balance for 2017) 2016 (470 + 370) / 2   =   420 (Inventory of 2016 is ending and inventory of 2015 is beginning balance for 2016) 3 Profit margin = Net income / Sales * 100 2017 322 / 3880 * 100 8.3% 2016 182 / 3540 * 100 5.1% 4 Return on assets = Net income / Average assets * 100 2017 322 / 2435 * 100 13.2% 2016 182 / 2350 * 100 7.7% *Average assets = (Ending assets + Beginning assets) / 2 2017 (2500 + 2370) / 2    = 2435 (Total assets of 2017 is ending and total assets of 2016 is beginning balance for 2017) 2016 (2370 + 2330) / 2   =   2350 (Total assets of 2016 is ending and total assets of 2015 is beginning balance for 2016) 5 Return on common stockholder's equity =   Net income / Average stockholder's equity * 100 2017 322 / 1075 * 100 29.9 or 30% 2016 182 / 1015 * 100 17.9% *Average stockholder's equity = (Ending equity + Beginning equity) / 2 2017 (1070 + 1080) / 2    = 1075 (Equity of 2017 is ending and equity of 2016 is beginning balance for 2017) 2016 (1080 + 950) / 2   =   1015 (Equity of 2016 is ending and equity of 2015 is beginning balance for 2016) 6 Debt to assets ratio = (Current liabilities + long term liabilities) / Total assets * 100 2017 (940 + 490) / 2500 * 100 57.2% 2016 (830 + 460) / 2370 * 100 54.4% 7 Time interest earned = (Income before income taxes + Interest expenses) / Interest expenses 2017 (460 + 25) / 25 19.4 times 2016 (260 + 20) / 20 14 times Explanations: The formula for time interest earned is 'Income before Interest and Taxes / Interest Expenses', We have income before tax not the income before interest and taxes, so we need to add the interest expenses in the income before income tax.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.