Question

The financial statements of Ivanhoe Inc. are presented here:

IVANHOE INC. Income Statement Year Ended December 31, 2018
Service revenue				$2,177,500
Expenses
Operating expenses		$1,880,500
Interest expense		100,000		1,980,500
Income before income tax				197,000
Income tax expense				39,000
Net income				$158,000

IVANHOE INC. Statement of Financial Position December 31, 2018
Assets
Current assets
Cash		$ 63,100
Held for trading investments		54,000
Accounts receivable		265,800
Supplies		28,000		$ 410,900
Property, plant, and equipment				579,300
Total assets				$990,200
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable		$86,000
Income tax payable		20,000
Current portion of mortgage payable		27,500		$ 133,500
Mortgage payable				280,000
Total liabilities				413,500
Shareholders’ equity
Common shares		$272,630
Retained earnings		304,070		576,700
Total liabilities and shareholders’ equity				$990,200

Additional information:

1.		Income available to common shareholders was $158,000.
2.		The weighted average number of common shares was 33,000.
3.		The share price at December 31 was $35.

A.

Calculate the following values and ratios for 2018. We provide the results for 2017 for comparative purposes. (Round current ratio, debt to total assets, and price-earnings ratio to 1 decimal place, e.g., 5.2, 5.2%. Round basic earnings per share to 2 decimal places, e.g. $5.20.)

1.		Working capital (2017: $260,500)
2.		Current ratio (2017: 1.6:1)
3.		Debt to total assets (2017: 31.5%)
4.		Basic earnings per share (2017: $3.15)
5.		Price-earnings ratio (2017: 7.5 times)

1. working capital: $_____

2. Current ratio: ____;1

3. Debt to total assets: ____%

4. Basic earnings per share: $____

5. Price-earnings ratio:______times.

B. Using the information in part (a), analyze the changes in liquidity, solvency, and profitability between 2018 and 2017.

1. Did liquidity improve, deteriorate, or stay the same?

2. did solvency improve, deteriorate, or stay the same?

3. did profitability improve, deteriorate, or stay the same?

Answer 1

Ivanhoe inc.,

	Formula	2018	2017	Increase/Decrease
Working capital	current assets - current liabilities	410,900-133,500 = $ 277,400	$ 260,500	Increase
Current ratio	current assets / current liabilities	410,900/133,500 = 3.1	1.6	Increase
Debt to total assets	total debt / total assets	413,500/990,200 = 41.8%	31.5%	Increase
Basic Earnings per share	earnings available to common shareholders / weighted average number of common shareholders	15,800/33,000 = $ 4.79	$ 3.15	Increase
Price - Earnings ratio	market price / earnings per share	35/4.79 = 7.3 times	7.5 times	Decrease

Market price (2017) = 3.15 × 7.5 = $ 23.625 (approximately)

Market price also increased from 2017 to 2018.

Liquidity ratio, solvency ratios, Profitability ratios are improved from 2017 to 2018. All ratios are in increasing trend.