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

Question

The condensed financial statements of Sandhill Co. for the years 2016 and 2017 are presented as follows. (Amounts in thousands.)

SANDHILL CO.
Balance Sheets
December 31

2017

2016

$330

$360

550

480

500

430

120

160

1,500

1,430

90

90

420

380

530

510

$2,540

$2,410

$980

$870

450

420

1,110

1,120

$2,540

$2,410

SANDHILL CO.
Income Statements
For the Year Ended December 31

2017

2016

$3,840

$3,500

1,035

970

2,400

2,330

25

20

3,460

3,320

380

180

114

54

$ 266

$ 126

Compute the following ratios for 2017 and 2016. (Round current ratio and inventory turnover to 2 decimal places, e.g. 1.83 and all other answers to 1 decimal place, e.g. 1.8 or 12.6%.)

2017

2016

SANDHILL CO.
Balance Sheets
December 31

2017

2016

Current assets    Cash and cash equivalents

$330

$360

   Accounts receivable (net)

550

480

   Inventory

500

430

   Prepaid expenses

120

160

     Total current assets

1,500

1,430

Investments

90

90

Property, plant, and equipment (net)

420

380

Intangibles and other assets

530

510

     Total assets

$2,540

$2,410

Current liabilities

$980

$870

Long-term liabilities

450

420

Stockholders’ equity—common

1,110

1,120

     Total liabilities and stockholders’ equity

$2,540

$2,410

Explanation / Answer

1)CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES FOR 2016 1.64:1 (ROUNDED OFF) 1430/870 = 1.6436782 FOR 2017 1.53:1 (ROUNDED OFF) 1500/980 = 1.5306122 2)INVENTORY TURNOVER RATIO = SALES / AVERAGE IVENTORY FOR 2016 8.64 (ROUNDED OFF) AVERAGE INVENTORY = 430+380/2 405 INVENTORY TURNOVER RATIO= 3500/405= 8.641975 FOR 2017 8.26 (ROUNDED OFF) AVERAGE INVENTORY =( 500+430)/2 465 INVENTORY TURNOVER RATIO= 3840/465 8.258065 3)PROFIT MARGIN = NET INCOMME/NET SALES FOR 2016 3.60% 126/3500= 0.036 FOR 2017 6.93% 266/3840= 0.0692708 4) RETURN ON ASSETS = NET INCOME / AVERAGE TOTAL ASSETS FOR 2016 4.94% 126/((2410+2690)/2)= 0.049411765 FOR 2017 10.75% 266/((2540+2410)/2)= 0.107474747 5)RETURN ON COMMON STOCK HOLDERS EQUITY = NET INCOME /AVERAGE STOCK HOLDERRS EQUITY FOR 2016 12.35% 126/((1120+920)/2)= 0.123529412 FOR 2017 23.86% 266/((1110+1120)/2)= 0.238565022 6)DEBT TO ASSETS RATIO = DEBT CAPITAL / TOTAL ASSETS FOR 2016 17.43% 420/2410= 0.1742739 FOR 2017 17.72% 450/2540= 0.1771654 7)TIMES INTEREST EARNED = EARNINGS BEFORE INTEREST AND TAXES / INTEREST FOR 2016 200/20 10 FOR 2017 405/25 16.2

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