Salza Technology Corporation Annual Income Statements (in $ Thousands) 2012 2013
ID: 2342975 • Letter: S
Question
Salza Technology Corporation
Annual Income Statements (in $ Thousands)
2012
2013
Net sales
$375
$450
Less: Cost of goods sold
-225
-270
Gross profit
150
180
Less: Operating expenses
-46
-46
Less: Depreciation
-25
-30
Less: Interest
-4
-4
Income before taxes
75
100
Less: Income taxes
-20
-30
Net income
$ 55
$70
Cash dividends
$ 17
$ 20
Balance Sheets as of December 31 (in $ Thousands)
2012
2013
Cash
$ 39
$ 16
Accounts receivable
50
80
Inventories
151
204
Total current assets
240
300
Gross fixed assets
200
290
Less accumulated depreciation
95
125
Net fixed assets
105
165
Total assets
$345
$465
Accounts payable
$ 30
$ 45
Bank loan
20
27
Accrued liabilities
10
23
Total current liabilities
60
95
Long-term debt
15
15
Common stock
85
120
Retained earnings
185
235
Total liabilities and equity
$345
$465
2. [Liquidity and Financial Leverage Ratios] Refer to the Salza Technology Corporation in Problem 1.
A. Using average balance sheet account data, calculate the (a) current ratio, (b) quick ratio, (c) total-debt-to-total-assets ratio, and (d) the interest coverage ratio for 2013.
B. Repeat the ratio calculations requested in Part A separately for 2012 and 2013 using year-end balance sheet account data. What changes, if any, have occurred in terms of liquidity and financial leverage?
2012
2013
Net sales
$375
$450
Less: Cost of goods sold
-225
-270
Gross profit
150
180
Less: Operating expenses
-46
-46
Less: Depreciation
-25
-30
Less: Interest
-4
-4
Income before taxes
75
100
Less: Income taxes
-20
-30
Net income
$ 55
$70
Cash dividends
$ 17
$ 20
Explanation / Answer
1,A,
Average current Assets=$240 +$300/2=$270
Average current Liabilities=$60+$95/2=$77.50
Therefore Current Ratio=$270/$77.50=3.48 Times
b) Quick Ratio= Average current Assets-Average Inventories- Short term Marketable securities/Average current Liabilities
=($240 +$300/2)-($151+$204/2) /$60+$95/2=1.19 Times
c) total debt to total asset ratio = Average total debt/Average total assets
=($60+$95)/2 + ($15+$15)/2 / ($345+$465)/2=$92.50/$405=22.84%
d)Interest coverage ratio: Average earnings before interest and taxes depreciation /Average Interest
EBITDA = Net sales – Cost of goods sold- operating expenses
2012=$375-$225-$46=$104
2013=$450-$270-$46=$134
Interest Coverage Ratio=($104+$134/2 ) /($4 +$4)/2=29.75 Times
1 B
2012=$240/$60=4 Times
2013=$300/$95=3.16 Times
2012=($240-$151)/$60=1.48 Times
2013=($300-$204)/$95=1.01 Times
2012=($60+$15/$345)=21.74%
2013=($95+$15)/$465=22.66%
2012=($375-$225-$46)/$4=26 Times
2013 ($450-$270-$46)$4=33.50 Times
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