Question

Application Problem 12-17A a (Ratio analysis of two companies) You have obtained the financial statements of A-Tec and Bi-Sci, two new companies in the high-tech industry. Both companies have just completed their second full year of operations. You have acquired the following information for an analysis of the companies (amounts in thousands): Cash Accounts receivable Inventory Prepaid expenses Capital assets (net) Current liabilities Long-term debt Share capital-common shares Retained earnings Sales (all credit sales) Cost of goods sold Interest expense Taxes (30%) Net income A-Tec Bresci 2020 2019 2020 2019 $9 $0 $26 $23 199 154 13190 13199 121 101 5 5 5 5 358 296 231 147 104 137 46 53 180 224 0 107 107 228 228 311 86 240 85 2,058 1,221 1,246 1,237 1,150 950 874 970 21 23 0 0 7953 70 61 184 124 163 142 (a) Calculate the following ratios for the two companies for the two years. For 2019, assume the current year amount is equal to the average where required. (Round current ratio, accounts receivable turnover, inventory turnover, interest coverage to 2 decimal places, e.g. 14.84 and debt to equity, gross margin, profit margin, return on assets and return on equity to 1 decimal place, e.g. 14.8%.) i. Current ratio ii. Accounts receivable turnover iii. Inventory turnover iv. Debt to equity V. Interest coverage vi. Gross margin vii. Profit margin viii. Return on assets ix. Return on equity A-Tec Bi-Sci 2020 2019 2020 2019 i. Current ratio ii. Accounts receivable turnover times times times times iii. Inventory turnover times times times times iv. Debt to equity v. Interest coverage vi. Gross margin vii. Profit margin viii. Return on assets ix. Return on equity

Answer 1

			A-Tec		Bi-Sci
			2020	2019	2020	2019
1	Current Ratio	Current Asset/ Current Liability	3.31	1.88	6.15	4.13
2	Accounts Receivable t/o ratio	Net Credit Sales/ Average Accounts Receivable	11.66	7.93	11.28	13.74
3	Inventory turnover	cost of goods sold/average inventory	10	9.60	7.87	9.60
4	Debt to equity	Total Debt/ Total Equity *100	43.1%	116.1%	0.0%	0.0%
5	Times interest earned ratio	Income before Interest&Tax / Interest Expense	13.52	8.70	-	-
6	Gross Margin	Gross Profit/ Net Sales *100	44.1%	22.2%	29.9%	21.6%
7	Profit Margin	Net Income/ Net Sales *100	8.9%	10.2%	13.1%	11.5%
8	Return on Asset Ratio	Net Income/ Average Total Assets *100	29.3%	22.4%	37.0%	38.8%
9	Return on equity	Net Income/ Average Shareholders’ Equity *100	60.2%	64.2%	41.7%	45.4%

A D G H A-Tec Bi-Sci 2020 2019 2020 2019 0 154 90 99 101 26 131 121 5 231 514 46 5 147 366 Cash Accounts Receivable Inventory Prepaid Expenses Cpaital Assets (net) Total Assets Current Liabilities Long term Debt Share Capital-Common Shares Retained Earnings Total Equity and Liabilities Sales Cost of Goods Sold Interest Expenses Taxes Net income 199 131 5 358 702 104 180 107 311 702 2058 1150 21 5 296 554 137 224 107 86 554 1221 950 23 53 228 240 514 1246 874 0 70 163 228 85 366 1237 970 0 61 142 79 184 124 258 219 154 283 110.5 111 90 0 Current Asset Average Accounts Receivable Average inventory Total Debt Total Equity Income before Interest&Tax Gross Profit Average Shareholders' Equity Average Total Assets 344 176.5 115 180 418 284 908 305.5" 101 0 313 193 203 468 233 372 390.5 440 271 193 554 32 267 313 366 33 628 34

н A-Tec 2019 2020 Bi-Sci 2019 23 2020 26 131 121 154 90 199 131 99 5 231 =SUM(F8:F12) 46 Cash Accounts Receivable Inventory Prepaid Expenses Cpaital Assets (net) Total Assets Current Liabilities Long term Debt Share Capital-Common Shares Retained Earnings Total Equity and Liabilities Sales Cost of Goods Sold Interest Expenses Taxes Net income 101 5 147 =SUM(G8:12) 53 5 296 =SUM(E8:E12) 137 224 107 358 =SUM(D8:012) 104 180 107 311 =SUM(D14:017) 2058 1150 228 86 228 240 =SUM(F14:F17) 85 1246 =SUM(G14:617) 1237 970 874 =SUM(E14:E17) 1221 950 23 53 124 79 70 163 61 142 184 Current Asset Average Accounts Receivable Average inventory Total Debt Total Equity Income before Interest&Tax Gross Profit Average Shareholders' Equity Average Total Assets =D8+D9+D10+D11 =(D9+E9)/2 =(D10+E10)/2 =D15 =D16+D17 =D23+D22+D21 =D19-D20 =(D29+E29)/2 =(D13+E13)/2 E8+E9+E10+E11 -E9 =E10 =E15 =E16+E17 =E23+E22+E21 =E19-E20 =F8+F9+F10+F11 =(F9+G9)/2 =(F10+G10)/2 =F15 =F16+F17 =F23+F22+F21 =F19-F20 =(F29+G29)/2 =(F13+G13)/2 =G8+G9+G10+G11 =G9 =G10 =G15 =G16+G17 =G23+G22+G21 =G19-G20 =G29 =G18 =E29 =E18

Hope you Understood.

If you have any doubt please leave a comment. Thank you