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(Ratio analysis over time) The following information comes from the accounting r

ID: 2559752 • Letter: #

Question

(Ratio analysis over time) The following information comes from the accounting records of Hercep Ltd. for the first three years of its existence 2014 2015 2016 Statement of Financial Position Assets Cash Accounts receivable Inventory Capital assets (net) Other assets $22,500 131,200 203,900 526,300 279,200 $897,800 $852,100 $1,163,100 $22,500 $20,900 51,200 126,800 464,900 446,000 225,100 207,200 67,000 118,300 Liabilities and equity Accounts payable Long-term debt Common shares Retained earnings $108,000 51,800 $104,000 460,100 539,000 60,000 $897,800 $852,100 $1,163,100 182,500 246,600 539,000 539,000 14,700 68,300 Statement of Earnings Sales Cost of goods sold Other expenses $700,000 $740,000 $890,000 (399,000) (493,580) (614,100) (170,900) (226,000) (217,100) 58,800 (39,030) (6,126) (17,640) $41,160 130,100 20,420 Income tax Net income $91,070 $14,294 Prepare common size income statements. For 2014, use year-end values, not averages, for the assets in your calculations. (Round answers to 1 decimal place, eg. 13.596.) 2014 2015 2016 Sales Cost of goods sold Gross margin Other expenses Income taxes Net income

Explanation / Answer

Current Ratio = Current Assets / Current liabilities

quick Ratio = Current Asset - Inventories / Current Liabilities

A/R turnover = net credit sales / Average inventory

Average collection Period = Account receivable / daily credit sales

Inventory turnover = COGS/ INVENTORY

days to sell inventory = Inventory turnover ratio / 365 days

debr equity = total outstanding liability / shareholders funds

Return on assets = net income / total assets

Return on equity = net income / total share holders funds

2014 2015 2016 sales 100 100 100 Cost of good sold 57.00 66.70 69.00 Gross Margin 43.00 33.30 31.00 other expenses 24.41 30.54 24.39 income tax 5.58 0.83 1.98 Net income 13.01 1.93 4.62 current ratio 1.92 3.84 3.44 Quick Ratio 0.83 1.39 1.48 A/R Turnover 10.45 14.45 6.78 Average Collection Period 34.94 25.25 53.81 inventory turnover 3.37 3.89 3.01 Days to sell inventory 108.22 93.77 121.19 Debt Equity 47.83 53.89 94.17 Return on assets 10.14 1.68 3.54 Return on Equity 15.00 2.58 6.87