The condensed financial statements of Pharoah Company for the years 2016 and 201

Question

The condensed financial statements of Pharoah Company for the years 2016 and 2017 are presented below.

PHAROAH COMPANY
Balance Sheets
December 31 (in thousands)

2017

2016

$330

$360

570

500

640

570

130

160

1,670

1,590

410

380

110

110

530

510

$2,720

$2,590

$920

$890

660

560

1,140

1,140

$2,720

$2,590

PHAROAH COMPANY
Income Statements
For the Year Ended December 31 (in thousands)

2017

2016

$3,980

$3,640

1,070

990

2,400

2,330

10

20

3,480

3,340

500

300

200

120

$ 300

$ 180

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

PHAROAH COMPANY
Balance Sheets
December 31 (in thousands)

2017

2016

Current assets    Cash and cash equivalents

$330

$360

   Accounts receivable (net)

570

500

   Inventory

640

570

   Prepaid expenses

130

160

     Total current assets

1,670

1,590

Property, plant, and equipment (net)

410

380

Investments

110

110

Intangibles and other assets

530

510

     Total assets

$2,720

$2,590

Current liabilities

$920

$890

Long-term liabilities

660

560

Stockholders’ equity—common

1,140

1,140

     Total liabilities and stockholders’ equity

$2,720

$2,590

Explanation / Answer

COMPUTATION OF RATIOS FOR 2017 AND 2016:

RATIOS FORMULA 2017 2016 Current Ratio Current Assets / Current Liabilities 1,670 / 920 = 1.81:1 1,590 / 890 = 1.78:1 Inventory Turnover Cost of goods sold / Average Inventory (1,070 / 605) = 1.76times (990 / 490) = 2.02times Profit Margin (Net Income / Sales Revenue) * 100 (300 / 3,980) * 100 = 7.53% (180 / 3,640) * 100 = 4.94% Return on assets (Net Income / Average Total Assets) * 100 (300 / 2,655) * 100 = 11.29% (180 / 2,565) * 100 = 7.01% Return on common stockholder's equity (Net Income / Average stockholder's equity) * 100 (300 / 1,140) * 100 = 26.31% (180 / 1,045) * 100 = 17.22% Debt to assets ratio Long term debt / Total assets 660 / 1,140 = 0.57:1 560 / 1,140 = 0.49:1 Times interest earned Income before interest expense / Annual Interest 510 / 10 = 51times 320 / 20 = 16times

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