Question

The condensed financial statements of Ness Company for the years 2019 and 2020 are presented below.

Ness Company Balance Sheets December 31 (in thousands)
		2020		2019
Current assets
Cash and cash equivalents		$320		$350
Accounts receivable (net)		420		430
Inventory		430		380
Prepaid expenses		140		160
Total current assets		1,310		1,320
Property, plant, and equipment (net)		370		380
Investments		1		10
Intangibles and other assets		520		470
Total assets		$2,201		$2,180
Current liabilities		$740		$780
Long-term liabilities		451		390
Stockholders’ equity—common		1,010		1,010
Total liabilities and stockholders’ equity		$2,201		$2,180

Ness Company Income Statements For the Years Ended December 31 (in thousands)
		2020		2019
Sales revenue		$3,860		$3,460
Costs and expenses
Cost of goods sold		940		900
Selling & administrative expenses		2,450		2,380
Interest expense		10		20
Total costs and expenses		3,400		3,300
Income before income taxes		460		160
Income tax expense		184		64
Net income		$276		$96

Compute the following ratios for 2020 and 2019. Inventory on December 31, 2018, was $370. Assets on December 31, 2018, were $1,920. Equity on December 31, 2018, was $850

(a)		Current ratio			:1			:1
(b)		Inventory turnover			times			times
(c)		Profit margin			%			%
(d)		Return on assets			%			%
(e)		Return on common stockholders’ equity			%			%
(f)		Debt to assets ratio			%			%
(g)		Times interest earned			times			times

Answer 1

Computation of the ratios for 2020 and 2019

	Particulars	Formula	2020	2019
(a)	Current ratio	Current assets/ Current liabilities	1310/$740 =1.77	1320/$780 =1.69
(b)	Inventory turnover	Cost of goods sold / Average Inventory	940/[(430+380)/2] =2.32 times	900/[(380+370)/2] =2.4times
(c)	profit margin	Net income/Net sales	276/3860 = 7.15%	96/3460 =2.77%
(d)	Return on assets	Net income/Average total assets	276/[(2201+2180)/2] =12.6%	96/[(2180+1920)/2] =4.68%
(e)	Return on common stockholders equity	Net income/Average Stockholders equity	276/[(1010+1010)/2] =27.33%	96/[(1010+850)/2] =10.32%
(f)	Debt to assets ratio	Total liabilities/Total assets	(740+451)/2201 =54.11%	(780+390) /2180 =53.67%
(g)	Time interest earned	Earning before interest and tax/Interest expense	(460+10) /10 =47times	(160+20) /20 =9times

-----------------*------------------

DO VOTE, ALL THE BEST