Ontario Inc. reports the following financial statements for 2015: Income Stateme
ID: 2765858 • Letter: O
Question
Ontario Inc. reports the following financial statements for 2015:
Income Statement
Actual
Sales revenues
$300
Cost of goods sold
180
Gross profit
120
Depreciation expense
20
Other operating expenses
60
Operating income
40
Interest expense
10
Income before taxes
30
Income tax expense
6
Net income
$24
Earnings per share
$.25
Balance Sheet
Assets
Liabilities
Cash
$20
Current: accounts payable
$85
Accounts receivable
60
Long-term: bonds payable
115
Inventory
90
Total liabilities
200
Total current assets
170
Shareholders’ Equity
Equipment, cost
410
Contributed capital
180
Less: accumulated depreciation
(80)
Retained earnings
120
Equipment, net
330
Total shareholders’ equity
300
Total assets
$500
Total liabilities and s/equity
$500
Required: Compute the following ratios for 2015:
RATIOs
Calculated RATIO
1.Current (working capital)
2.Accounts receivable turnover
3.Days in accounts receivable
4.Inventory turnover
5.Days in inventory
6.Accounts payable turnover
7.Days in accounts payable
8.Net cash conversion cycle
9.Operating profit margin
10.Net profit margin
11.Asset turnover
12.Return on assets
13.Return on equity
14.Debt to capital
15.Earnings coverage
Income Statement
Actual
Sales revenues
$300
Cost of goods sold
180
Gross profit
120
Depreciation expense
20
Other operating expenses
60
Operating income
40
Interest expense
10
Income before taxes
30
Income tax expense
6
Net income
$24
Earnings per share
$.25
Explanation / Answer
RATIOs
RATIO
Calculated RATIO
Calculations
1.Current (working capital)
Current Assets/Current Liabilities
2.0
170/85
2.Accounts receivable turnover
Net Sales/Average Gross Receivables
5.0
300/60
3.Days in accounts receivable
365/Receivable turnover ratio
73
365/5
4.Inventory turnover
Cost of Goods Sold/Average Inventory
2.00
180/90
5.Days in inventory
365/Inventory turnover ratio
183
365/2
6.Accounts payable turnover
Net purchase/Average Gross payable
2.12
180/85
7.Days in accounts payable
365/ account payable turnover
326
365/1.12
8.Net cash conversion cycle
days in account receivable+days in inventory-days in account payable
-70
73+183-326
9.Operating profit margin
Operting income /net sales
13%
40/300
10.Net profit margin
Net Income /Net Sales
8%
24/300
11.Asset turnover
Net Sales/Average Total Assets
0.91
300/330
12.Return on assets
Net Income /(Beginning + Ending Total Assets) / 2
0.048
24/500
13.Return on equity
Net Income /Equity
0.08
24/300
14.Debt to capital
Debt/Debt+equity
0.277108
115/(115+300)
15.Earnings coverage
income before tax and interest/interest
4
40/10
RATIOs
RATIO
Calculated RATIO
Calculations
1.Current (working capital)
Current Assets/Current Liabilities
2.0
170/85
2.Accounts receivable turnover
Net Sales/Average Gross Receivables
5.0
300/60
3.Days in accounts receivable
365/Receivable turnover ratio
73
365/5
4.Inventory turnover
Cost of Goods Sold/Average Inventory
2.00
180/90
5.Days in inventory
365/Inventory turnover ratio
183
365/2
6.Accounts payable turnover
Net purchase/Average Gross payable
2.12
180/85
7.Days in accounts payable
365/ account payable turnover
326
365/1.12
8.Net cash conversion cycle
days in account receivable+days in inventory-days in account payable
-70
73+183-326
9.Operating profit margin
Operting income /net sales
13%
40/300
10.Net profit margin
Net Income /Net Sales
8%
24/300
11.Asset turnover
Net Sales/Average Total Assets
0.91
300/330
12.Return on assets
Net Income /(Beginning + Ending Total Assets) / 2
0.048
24/500
13.Return on equity
Net Income /Equity
0.08
24/300
14.Debt to capital
Debt/Debt+equity
0.277108
115/(115+300)
15.Earnings coverage
income before tax and interest/interest
4
40/10
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