Are the five common ratios calculated correctly below? Pinnacle Manufacturing Co
ID: 2415358 • Letter: A
Question
Are the five common ratios calculated correctly below?
Pinnacle Manufacturing Company
Are the five common ratios calculated correctly below?
Pinnacle Manufacturing Company
Income Statement - Machine-Tech Division For the Year Ended December 31 2013 2012 2011 $ Value $ Value $ Value Sales 5,727,487 6,253,363 6,093,878 Sales Returns and Allowances 9,605 14,770 14,382 Cost of Sales* 1,902,694 2,193,103 2,105,027 Gross Profit 3,815,188 4,045,490 3,974,469 OPERATING EXPENSES-Allocated Salaries-Management 91,476 101,595 97,642 Salaries-Office 12,638 12,624 13,057 Licensing and certification fees 31,396 29,937 28,100 Security 22,086 27,128 26,820 Insurance 3,742 4,420 4,618 Medical benefits 795 1044 1022 Advertising 6,517 7,573 7,048 Business publications 1,902 2,032 283 Property taxes 1,448 7,573 7,475 Bad debts 33,321 44,759 42,942 Depreciation expense 240,767 197,527 185,850 Accounting fees 10,756 12,891 12,983 Total operating expenses-Allocated 456,844 449,103 427,840 OPERATING EXPENSES-Direct Salaries-Sales 198,978 230,922 224,543 Wages Rental 491,794 595,389 575,724 Wages-Mechanics 1,113,539 1,339,627 1,333,411 Wages-Warehouse 188,339 227,196 232,853 Garbage collection 27,649 29,771 37,970 Payroll benefits 139,832 124,984 123,136 Rent- Warehouse 28,126 31,554 31,306 Telephone 1,771 2,560 3,280 Utilities 14,415 11,357 11,670 Postage 4,708 5,688 6,445 Linen service 579 350 457 Repairs and maintenance 9,414 11,484 12,153 Cleaning service 3,253 3,472 3,322 Legal service 11,327 13,255 10,590 Fuel 14,608 14,522 11,897 Travel and entertainment 4,928 4,420 4,277 Pension expense 6,368 11,121 5,951 Office supplies 6,012 6,312 7,281 Miscellaneous 8,141 5,035 6,856 Total operating expenses-Direct 2,273,781 2,669,019 2,643,122 Total operating expenses 2,730,625 3,118,122 3,070,962 OPERATING INCOME 1,084,563 927,368 903,507 * Details of manufacturing expenses are not included in this schedule. Current Ratio Year Current Assets Current Liabilities Ratio 2011 41,406,199 18,941,595 2.19 2012 41,625,107 21,526,804 1.93 2013 53,171,743 30,413,148 1.75 Debt-to-Equity Year Total Liabilities Stockholders' Equity Ratio 2011 41,321,515 58,353,416 0.71 2012 43,868,810 59,391,827 0.74 2013 54,833,238 60,601,552 0.90 Net Income Before Taxes/Sales - All Division Year Net Inc. before Taxes Sales Ratio 2011 3,059,187 144,686,413 0.021143568 2012 1,897,352 148,586,037 0.012769383 2013 2,093,162 150,737,628 0.013886128 Gross Profit Percentage - All Divisions Year Sales Direct Operating Exp Ratio 2011 144,686,413 27,707,646 0.81 2012 148,586,037 28,170,145 0.81 2013 150,737,628 27,078,608 0.82 Inventory Year Sales Inventory Ratio 2011 144,686,413 25,271,503 5.7252793 2012 148,586,037 25,537,198 5.818415826 2013 150,737,628 32,236,021 4.67606185Explanation / Answer
Since you havetaken different figures from the income statement provided by you in calculating these ratios, To check correctness of your ratio Calculation, I am answering based on the figures used by you and ignoring the income statement.
Current Ratio is correct
Debt to equity ratio is correct
Net Income Before Tax/Net Sales ratio is correct.
Gross Profit Ratio is correct, Assuming cost of Sales is also included in Direct Operating Expenses. If you have not considered Cost of Sales, While Calculating Direct Operating Expenses, Then GP Ratio is incorrect.
Inventory Turnover Ratio is correct.
Current Ratio = Current Assets/Current Liabilities Year Current Assets Current Liabilities Ratio 2011 41406199 18941595 2.19 2012 41625107 21526804 1.93 2013 53171743 30413148 1.75Related Questions
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