Question

12.24 (LO 1, 2, 3) Comprehensive financial statement analysis Koester, Inc., states in its 2020 10-K filing with the SEC, “In October 2020, two major credit rating agencies changed Koester's long-term credit rating outlook to negative and one of the credit rating agencies reduced Koester's short-term credit rating." Koester's financial statements (in $000) follow. Koester, Inc. Comparative Income Statement For the Year Ended December 31 2020 2019 Sales revenue $5,179,016 $5,102,786 Cost of goods sold 2,806,148 2,692,061 Gross profit 2,372,868 2,410,725 Operating expenses 1,708,339 1,679,908 Operating income 664,529 730,817 Interest expense, net 42,279 58,081 Other non-operating (income), net (29,799) (23,518) Income before income tax 652,049 696,254 Income tax expense 235,030 123,531 Net income $ 417,019 $ 572,723 2018 $4,960,100 2,530,617 2,429,483 1,643,773 785,710 61,611 (16,755) 740,854 203,222 $ 537,632

Answer 1

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Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. Parta Sales revenue Cost of goods sold Gross profit Operating expenses Operating income Interest expense, net Other non-operating (income), net Income before taxes Income tax expense Net income 2020 2019 Change in $ $ 5,179,016 $ 5,102,786 $ 76,230 $ 2,806,148 $ 2,692,061 $ 114,087 $ 2,372,868 $ 2,410,725 $ (37,857) $ 1,708,339 $ 1,679,908 $ 28,431 $ 664,529 $ 730,817 $ (66,288) $ 42,279 $ 58,081 $ (15,802) $ (29,799) $ (23,518) $ (6,281) $ 652,049 $ 696,254 $ (44,205) $ 235,030 $ 123,531 $ 111,499 $ 417,019 $ 572,723 $ (155,704) % change 1.5% 4.2% -1.6% 1.7% -9.1% -27.2% 26.7% -6.3% 90.3% -27.2% 2020 2019 Change in $ % change Assets Cash Accounts receivable, net Inventory Prepaid expenses Total current assets Property & equipment (net) Other assets Total assets $ 997,734 $ 1,156,835 $ (159,101) $ 760,643 $ 759,033 $ 1,610 $ 376,897 $ 418,633 $ (41,736) $ 277,226 $ 302,649 $ (25,423) $ 2,412,500 $ 2,637,150 $ (224,650) $ 547,104 $ 586,526 $ (39,422) $ 1,412,709 $ 1,532,816 $ (120,107) $ 4,372,313 $ 4,756,492 $ (384,179) -13.8% 0.2% -10.0% -8.4% -8.5% -6.7% -7.8% -8.1% Liabilities & Stockholders' Equity Short-term borrowings Current portion of long-term debt Accounts payable Accrued expenses Income taxes payable Total current liabilities $ 117,994 $ 28,995 $ 88,999 $ 100,000 $ 189,130 $ (89,130) $ 265,936 $ 349,159 $ (83,223) $ 796,473 $ 880,038 $ (83,565) $ 182,782 $ 279,849 $ 97,067) $ 1,463,185 $ 1,727,171 $ (263,986) 306.9% -47.1% -23.8% -9.5% -34.7% -15.3% Long-term debt Other Total noncurrent liabilities $ $ $ 525,000 $ 282,395 $ 807,395 $ 400,000 $ 243,509 $ 643,509 $ 125,000 38,886 163,886 31.3% 16.0% 25.5% Stockholders' equity: Common stock, $1.00 par value Additional paid-in capital Treasury stock Retained earnings Total stockholder's equity Total liabilities & stockholders' equity $ 441,369 $ 441,369 $ - $ 1,589,281 $ 1,594,332 $ (5,051) $ (935,711) $ (473,349) $ (462,362) $ 1,006,794 $ 823,460 $ 183,334 $ 2,101,733 $ 2,385,812 $ (284,079) $ 4,372,313 $ 4,756,492 $ (384,179) 0.0% -0.3% 97.7% 22.3% -11.9% -8.1%

Part b Sales revenue Cost of goods sold Gross profit Operating expenses Operating income Interest expense, net Other non-operating (income), net Income before taxes Income tax expense Net income 2020 2019 2018 $ 5,179,016 $ 5,102,786 $ 4,960,100 $ 2,806,148 $ 2,692,061 $ 2,530,617 $ 2,372,868 $ 2,410,725 $ 2,429,483 $ 1,708,339 $ 1,679,908 $ 1,643,773 $ 664,529 $ 730,817 $ 785,710 $ 42,279 $ 58,081 $ 61,611 $ (29,799) $ (23,518) $ (16,755) $ 652,049 $ 696,254 $ 740,854 $ 235,030 $ 123,531 $ 203,222 $ 417,019 $ 572,723 $ 537,632 Common Size 2020 2019 100.0% 100.0% 54.2% 52.8% 45.8% 47.2% 33.0% 32.9% 12.8% 14.3% 0.8% 1.1% -0.6% -0.5% 12.6% 13.6% 4.5% 2.4% 8.1% 11.2% 2018 100.0% 51.0% 49.0% 33.1% 15.8% 1.2% -0.3% 14.9% 4.1% 10.8% 2020 2019 2020 2019 Assets Cash Accounts receivable, net Inventory Prepaid expenses Total current assets Property & equipment (net) Other assets Total assets $ 997,734 $ 1,156,835 $ 760,643 $ 759,033 $ 376,897 $ 418,633 $ 277,226 $ 302,649 $ 2,412,500 $ 2,637,150 $ 547,104 $ 586,526 $ 1,412,709 $ 1,532,816 $ 4,372,313 $4,756,492 22.8% 17.4% 8.6% 6.3% 55.2% 12.5% 32.3% 100.0% 24.3% 16.0% 8.8% 6.4% 55.4% 12.3% 32.2% 100.0% Liabilities & Stockholders' Equity Short-term borrowings Current portion of long-term debt Accounts payable Accrued expenses Income taxes payable Total current liabilities $ 117,994 $ 28,995 $ 100,000 $ 189,130 $ 265,936 $ 349,159 $ 796,473 $ 880,038 $ 182,782 $ 279,849 $ 1,463,185 $ 1,727,171 2.7% 2.3% 6.1% 18.2% 4.2% 33.5% 0.6% 4.0% 7.3% 18.5% 5.9% 36.3% Long-term debt Other Total noncurrent liabilities $ $ $ 525,000 $ 282,395 $ 807,395 $ 400,000 243,509 643,509 12.0% 6.5% 18.5% 8.4% 5.1% 13.5% Stockholders' equity: Common stock, $1.00 par value Additional paid-in capital Treasury stock Retained earnings Total stockholder's equity Total liabilities & stockholders' equity $ 441,369 $ 441,369 $ 1,589,281 $ 1,594,332 $ (935,711) $ (473,349) $ 1,006,794 $ 823,460 $ 2,101,733 $ 2,385,812 $ 4,372,313 $ 4,756,492 10.1% 36.3% -21.4% 23.0% 48.1% 100.0% 9.3% 33.5% -10.0% 17.3% 50.2% 100.0% Partc Working Capital: Year 2020 Year 2019 $2,637,150 - $1,727,171 = $909,979 $2,412,500 - $1,463,185 = $949,315 Current ratio: Year 2020 Year 2019 $2,637,150 / $1,727,171 $2,412,500 / $1,463,185 = 1.53 = 1.65

Year 2020 Acid test ratio: Cash Accounts Receivable Total Less: Current Liabilities Acid test ratio: Year 2019 997,734 $ 1,156,835 760,643 $ 759,033 1,758,377 $ 1,915,868 a 1,463,185 $ 1,727,171 b 1.20 1.11 a/b a Accounts Receivable turnover: Sale Accounts Receivable 2020 Accounts Receivable 2019 Average Accounts Receivable Accounts Receivable turnover: $ 5,179,016 $ 760,643 $ 759,033 $ 759,838 6.8 b a/b Average collection period: 365/AR Turnover 53.6 Days Inventory Turnover: COGS Inventory 2020 Inventory 2019 Average Accounts Payable Inventory Turnover: $ 2,806,148 a $ 376,897 $ 418,633 $ 397,765 b 7.1 a/b Average days to sell inventory 365/Inventory Turnover 51.7 Days Part d Gross Margin Ratio Sale Gross Margin Gross Margin Ratio Year 2020 $ 5,179,016 $ 2,372,868 45.82% Year 2019 $ 5,102,786 $ 2,410,725 47.24% Year 2018 $ 4,960,100 $ 2,429,483 48.98% Return on common stockholders' equity Net Income Stockholder's Equity 2020 Stockholder's Equity 2019 Average Stockholder's Equity Return on common stockholders' equity $ 417,019 $ 2,101,733 $ 2,385,812 $ 2,243,773 18.6%