Question

The condensed financial statements of Ivanhoe Company for the years 2016 and 2017 are presented below.

IVANHOE COMPANY Balance Sheets December 31 (in thousands)
		2017		2016
Current assets
Cash and cash equivalents		$330		$360
Accounts receivable (net)		630		560
Inventory		600		530
Prepaid expenses		130		160
Total current assets		1,690		1,610
Property, plant, and equipment (net)		410		380
Investments		170		170
Intangibles and other assets		530		510
Total assets		$2,800		$2,670
Current liabilities		$980		$950
Long-term liabilities		620		520
Stockholders’ equity—common		1,200		1,200
Total liabilities and stockholders’ equity		$2,800		$2,670

IVANHOE COMPANY
Income Statements
For the Year Ended December 31 (in thousands)

2017

2016

Sales revenue

$3,940 (2017)

$3,600 (2016)

Costs and expenses   Cost of goods sold

1,130 (2017)

1,050 (2016)

   Selling & administrative expenses

2,400 (2017)

2,330 (2016)

   Interest expense

10 (2017)

20 (2016)

     Total costs and expenses

3,540 (2017)

3,400 (2016)

Income before income taxes

400 (2017)

200 (2016)

Income tax expense

160 (2017)

80 (2016)

Net income

$ 240 (2017)

$ 120 (2016)

Compute the following ratios for 2017 and 2016. (Round current ratio and inventory turnover to 2 decimal places, e.g 1.83 and all other answers to 1 decimal place, e.g. 1.8 or 12.6%.)

(a)		Current ratio.
(b)		Inventory turnover. (Inventory on December 31, 2015, was $370.)
(c)		Profit margin.
(d)		Return on assets. (Assets on December 31, 2015, were $1,980.)
(e)		Return on common stockholders’ equity. (Equity on December 31, 2015, was $970.)
(f)		Debt to assets ratio.
(g)		Times interest earned.

Answer 1

(a)The formula for current ratio is Current Assets/ Current liability

Current Ration (2016)= 1610/950

Current ratio (2016)= 1.69

and current ratio of (2107)= 1690/980

Current ratio (2017)= 1.72.

(b) The formula for Inventory turnover ratio is Cost of goods sold/Average Stock held

Inventory Turnover ratio (2016)= 1050/(370+530)/2

Inventory Turnover Ratio (2016)= 1050/450 = 2.33 times

Inventory Turnover Ratio (2017)= 1130/(600+530)/2

Inventory Turnover ratio (2017)= 1130/565 2 times.

(c) Profit Margin formula is (net income/Revenue)*100

Profit Margin (2017) = (240/3940)*100

Profit Margin (2017) = 6.09%

Profit Margin (2016) = (120/3600)*100

Profit Margin (2016) = 3.34%.

(d) Return on assets Net income/Average of Total Assets

Return on Assets (2017) = {240/(2800+2670)/2}*100

Return on Assets (2017)= (240/1650)*100= 7.78%

Return on Assets (2016)= {120/(1980+2670)/2}*100

Return On Assets (2016)= 5.16%

(e) Return on common Stockholders Equity Net Income/ Average Stockholder Equity

Return On Common Stockholders Equity (2017)= {240/(1200+1200)/2}*100

Return on common Stockholder Equity (2017)= 20%

Return on common Stockholders Equity(2016) = {120/(970+1200)/2}

Return On common Stockholder Equity (2016)= 11.06%

(f) Debt to Assets Ratio Total Debt/ Total Equity

Debt to Assets Ratio (2016)= (520/1200)*100

Debt to assets Ratio (2016)= 43.34%

Debt to Assets Ratio (2017)=(620/1200)*100

Debt to Assets Ratio (2017)= 51.67%

(g) Time Interest Earned Ratio EBIT/Interest Expenses

Time Interest Earned Ratio (2017)= 410/10

Time Interest Earned Ratio (2017)= 41 times

Time Interest Earned Ratio (2016)= EBIT/ Interest Expenses

Time Interest Earned Ratio (2016)= 220/20

Time Interest Earned Ratio (2016) = 11 times.