Question

The following financial information is for Pharoah Company. PHAROAH COMPANY Balance Sheets December 31 Assets 2017 2016 Cash $ 72,000 $ 69,000 Debt investments (short-term) 54,000 39,000 Accounts receivable 107,000 90,000 Inventory 236,000 162,000 Prepaid expenses 30,000 27,000 Land 133,000 133,000 Building and equipment (net) 260,000 188,000 Total assets $892,000 $708,000 Liabilities and Stockholders’ Equity Notes payable $170,000 $106,000 Accounts payable 65,000 54,000 Accrued liabilities 42,000 42,000 Bonds payable, due 2020 250,000 171,000 Common stock, $10 par 209,000 209,000 Retained earnings 156,000 126,000 Total liabilities and stockholders’ equity $892,000 $708,000 PHAROAH COMPANY Income Statements For the Years Ended December 31 2017 2016 Sales revenue $898,000 $789,000 Cost of goods sold 647,000 575,000 Gross profit 251,000 214,000 Operating expenses 194,000 160,000 Net income $ 57,000 $ 54,000 Additional information: 1. Inventory at the beginning of 2016 was $115,000. 2. Accounts receivable (net) at the beginning of 2016 were $89,000. 3. Total assets at the beginning of 2016 were $633,000. 4. No common stock transactions occurred during 2016 or 2017. 5. All sales were on account.

(a1) Your answer is partially correct. Try again. Compute the liquidity and profitability ratios of Pharoah Company for 2016 and 2017. (Round current ratio and asset turnover to 2 decimal places, e.g 1.83 and all other answers to 1 decimal place, e.g. 1.8 or 1.8%. If % change is a decrease show the numbers as negative, e.g. -1.83% or (1.83%).) 2017 2016 % Change LIQUIDITY Current ratio :1 :1 % Accounts receivables turnover times times % Inventory turnover times times % 2017 2016 % Change PROFITABILITY Profit margin % % % Asset turnover times times % Return on assets % % % Earnings per share $ $ %

Answer 1

Answer compute the liquidity and profitability ratios of Pharoah company for 2016 and 2017- 2017 2016 % change 11.80 times LIQUIDITY Current ratio Accounts receivable turnover 1.92 times 6.67% times |3.40% a times 4.5 times 5.7 times ] -21% Inventory Turnover I PROFITABILI TY profit margin Asset turnover 2017 2016 % change 6.3% 6.8% -7.35% 6.3% 6,8% -7.35% e times times -5.08% 7.1% 8.1% -12.35% $2-7bershare $2.6 per share 3.85% 11.12 Return on assets Earnings per share

LIQUIDITY I RATIOS: -> current ratio = current Assets For 2017 I current liabilities Current assets = $72000 + 54000 + 107000 + 236000 +30000) = $ 499000 Current liabilities = $( 65000+ 170000 +42000 277000 Current ratio = $499000 (2017) $ 277000 = 1.80 times For 2016 Current assets = $ (69000+ 39000+ 90000 + 162.000 +27000) = $387000 current liabilities = $ 54000 + 106000 + 42000 = $ 202.000 Current ratio = $ 387000 $202.000 = 1.92 times % change in current = 1.92-1.80 xloo d ratio 1.80 = 6.67% (2016)

Accounts receivables turnover = credit sales For 2017 Average accounts receivable Credit sales = $898000 Average Accounts = $ 90000+ 107009 receivable = $98500 Accounts Teceivable - $ 898000 Turnover (2017) $98500 = 9.10 times For 2016 Credit Sales = $789000 Average Accounts = $(89000+ 90000) receivable 2 = $89500 Account receivable = $789000 Turnover (2016) $ 89500 = 8.80 times % change in = 9.18-8,88x100 Accounts receivable 8.86 = 3.40% Inventory Turnover = Sales Inventory Tam Average Inventory

For 2017 Sales = $ 898000 Average Inventory = $ (162000 +236000) = $199000 Inventory tumovey = $ 898000 $199000 = 4.5 times (2017) For 2016 Average Inventory = $ ( 115000 +162000) 138500 = $ Sales = $789000 Inventory turnover = $789000 $ 138500 = 5.7 times (2016) % change in Inventory = 4.5-5.7 x 100 5.7 turnover .-1.2 xloo 5.7 - 21%

PROFITABILITY RATIOS :- → profit margin = Net Income xloo Net Sales FOT2017 Net Sales = $898000 Net Income = $57000 profit margin C $57000 x 100 (2017) $ 898000 = 6.3% For 2016 Net Sales = $789000 Net Income & $54000 profit margin = $54000 x100 (2016) $789000 - 6.8% % change in profit margin = 6.31-6.8 x 100 6.8 = -7.35% → Asset Turnover = sales For 2017 Average Assets Sales = $898000 Average Assets = $1708000 + 892000) 0 000

Asset Turnover (2017) = $898000 $ 800006 = 1. Rtimes For 2016 sales = $789000 Average Asset = $ (633000 + 708000) = $670500 Asset Turnover (2016) = $789000 - $ 670500 1.18 times % change in Asset (.12-1018) Turnover 11.18 -5.08% X100 - Return on Assets Net Income Xloo Average total Assets For 2017 Net Income = $57000 Average Total assets = $ 800.000 x100 Return on = $57000 Assets (2017) $ 800.000 = 7.1%

For 2016 Net Income = $ 54000 Average total assets: $670500 Return on Assets (2016) = $54000 xloo $670500 - 8.1% % change in Return on = 7.1-8.1 xloo Assets 8.1 -- 12.35% → Earnings pershare = Net Income Weighted Average no. of outstanding Shares For 2 017 209000 + 209000 Net Income = $57000 Average No. of outstanding = / 209 TO equity Shares 20900 +20900 = 20900 Shares Earning ber shave (2017) = $57000 2900 Shares = 2.7 per share

For 2016 Net Income = $ 54000 Average number of outstanding = 20900 Shares equity Shares Earnings per share = $54000 20900 Shares = 2.6 per share % change in Earnings per = 2.7-2.6 xloo Shaye 2.6 - 53.85%