BUSI 320 Comprehensive Problem Use the following information to answer the quest
ID: 2816771 • Letter: B
Question
BUSI 320 Comprehensive Problem
Use the following information to answer the questions below:
note: all sales are credit sales
Income Stmt info:
2016
2017
Sales
$ 975,000
$ 1,072,500
less Cost of Goods Sold:
325,000
346,125
Gross Profit
650,000
726,375
Operating Expenses
575,000
609,500
Earnings before Interest & Taxes
75,000
116,875
Interest exp
25,000
31,000
earnings before Taxes
50,000
85,875
Taxes
20,000
34,350
Net Income
$ 30,000
$ 51,525
Balance Sheet info:
12/31/2016
12/31/2017
Cash
60,000
$ 63,600
Accounts Receivable
80,000
$ 84,000
Inventory
110,000
$ 126,500
Total Current Assets
$ 250,000
$ 274,100
Fixed Assets (Net)
$ 300,000
$ 312,000
Total Assets
$ 550,000
$ 586,100
Current Liabilities
$ 130,000
$ 149,500
Long Term Liabilities
$ 150,000
$ 170,000
Total Liabilities
$ 280,000
$ 319,500
Stockholder's Equity
$ 270,000
$ 266,600
Total Liab & Equity:
$ 550,000
$ 586,100
Compute each of the following ratios for 2016 and 2017 and
indicate whether each ratio was getting "better" or "worse" from 2016 to 2017
and whether the 2017 ratio was "good" or "bad" compared to the Industry Avg
(round all numbers to 2 digits past the decimal place)
2016
2017
Getting Better or Getting Worse?
2017 Industry Avg
"Good" or "Bad" compared to Industry Avg
Profit Margin
0.09
Current Ratio
1.80
Quick Ratio
1.12
Return on Assets
0.18
Debt to Assets
0.60
Receivables turnover
12.00
Avg. collection period*
22.10
Inventory Turnover**
8.25
Return on Equity
0.16
Times Interest Earned
8.15
*Assume a 360 day year
**Inventory Turnover can be computed 2 different ways. Use the formula listed in the text
( SALES divided by INVENTORY )
(the one the text indicates many credit reporting agencies generally use)
BUSI 320 Comprehensive Problem
Use the following information to answer the questions below:
note: all sales are credit sales
Income Stmt info:
2016
2017
Sales
$ 975,000
$ 1,072,500
less Cost of Goods Sold:
325,000
346,125
Gross Profit
650,000
726,375
Operating Expenses
575,000
609,500
Earnings before Interest & Taxes
75,000
116,875
Interest exp
25,000
31,000
earnings before Taxes
50,000
85,875
Taxes
20,000
34,350
Net Income
$ 30,000
$ 51,525
Balance Sheet info:
12/31/2016
12/31/2017
Cash
60,000
$ 63,600
Accounts Receivable
80,000
$ 84,000
Inventory
110,000
$ 126,500
Total Current Assets
$ 250,000
$ 274,100
Fixed Assets (Net)
$ 300,000
$ 312,000
Total Assets
$ 550,000
$ 586,100
Current Liabilities
$ 130,000
$ 149,500
Long Term Liabilities
$ 150,000
$ 170,000
Total Liabilities
$ 280,000
$ 319,500
Stockholder's Equity
$ 270,000
$ 266,600
Total Liab & Equity:
$ 550,000
$ 586,100
Explanation / Answer
Profit Margin = Net income / total sales
For 2016 - 30000/975000 = 0.03
For 2017 - 51525/1072500 = 0.05
Current ratio = Current assets / current liabilities
For 2016 - 250000/130000 = 1.92
For 2017 - 274100/149500 = 1.83
Quick ratio = Quick assets / current liabilities
quick assets = current assets - inventory = 250000-110000 = 140000 (2016)
(274100-126500) = 147600
For 2016 - Quick ratio = 140000/130000 = 1.08
For 2017 - 147600/149500 = 0.99
Return on assets = EBIT / Total assets
2016 - 75000/550000 = 0.14
2017 - 116875/586100 = 0.20
Debt to assets = Total debt/ total assets
2016 - 280000/550000 = 0.51
2017 - 319500 / 586100 = 0.55
Receivable turnover = Net credit sales/ average accounts receivable
For 2016 - 975000/((80000+84000)/2) = 11.89
For 2017 - 1072500/((80000+84000)/2) = 13.08
Average collection period = 360/ receivable turnover
For 2016 - 360/11.89 = 30.28
For 2017 - 360/13.08 = 27.52
Inventory turnover = Sales / average inventory
For 2016 - 975000/((110000+126500)/2) = 8.25
For 2017 - 1072500/((110000+126500)/2) = 9.07
Return on equity - Net income / shareholder's equity
For 2016 - 30000/270000 = 0.11
For 2017 - 51525/266600 = 0.19
Times interest earned = EBIT / Interest
For 2016 - 75000/25000 = 3
For 2017 - 116875/31000 = 3.77
Please check with your answer and let me know.
Desired ratios Formula 2016 2017 Getting Betteror getting worse 2017 industry avg. Good or bad compared to industry avg. Profit margin Net income / Total sales 0.03 0.05 better 0.09 bad Current ratio Current assets / current liabilities 1.92 1.83 worse 1.8 good Quick ratio Liquid assets / current liabilities 1.08 0.99 worse 1.12 bad Return on assets Net income / total assets 0.14 0.20 better 0.18 good Debt to assets Total Debt/ Total assets 0.51 0.55 worse 0.6 good receivables turnover Net credit sale/ average accounts receivable 11.89 13.08 better 12 good Avg. collection period 360/receivable turnover 30.28 27.52 worse 22.1 good inventory turnover Sales/ avg. inventory 8.25 9.07 better 8.25 good return on equity Net income / shareholder's equity 0.11 0.19 better 0.16 good Times interest earned EBIT/Interest expense 3.00 3.77 better 8.15 badRelated Questions
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