Question

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

CRANE COMPANY

Balance Sheets

December 31 (in thousands)

2017

2016

Current assets

Cash and cash equivalents

$330

$360

Accounts receivable (net)

530

460

Inventory

640

570

Prepaid expenses

130

160

Total current assets

1,630

1,550

Property, plant, and equipment (net)

410

380

Investments

70

70

Intangibles and other assets

530

510

Total assets

$2,640

$2,510

Current liabilities

$880

$850

Long-term liabilities

660

560

Stockholders’ equity—common

1,100

1,100

Total liabilities and stockholders’ equity

$2,640

$2,510

CRANE COMPANY

Income Statements

For the Year Ended December 31 (in thousands)

2017

2016

Sales revenue

$3,980

$3,640

Costs and expenses

Cost of goods sold

1,030

950

Selling & administrative expenses

2,400

2,330

Interest expense

10

20

Total costs and expenses

3,440

3,300

Income before income taxes

540

340

Income tax expense

216

136

Net income

$ 324

$ 204

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 $390.)

(c) Profit margin.

(d) Return on assets. (Assets on December 31, 2015, were $2,720.)

(e) Return on common stockholders’ equity. (Equity on December 31, 2015, was $950.)

(f) Debt to assets ratio.

(g) Times interest earned.

2017

2016

Current ratio.

:1

:1

Inventory turnover.

Profit margin.

%

%

Return on assets.

%

%

Return on common stockholders’ equity.

%

%

Debt to assets ratio.

%

%

Times interest earned.

times

times

Answer 1

Crane company

		Formula	2017	2016
1	Current ratio	current assets/current liabilities	1630/880 = 1.85:1	1550/850 = 1.82:1
2	Inventory turnover ratio	COGS/average inventory	1030/(640+570)/2 = 1.70 times	950/(570+340)/2 = 2.09 times
3	Profit margin	Net profit/sales	324/3980 = 8.14 %	204/3640 = 5.60%
4	Return on assets	PAT/Average total assets	324/(2640+2510)/2 = 12.58%	204/(2510+2720)/2 = 7.80%
5	Return on shareholders equity	PAT/Average shareholders equity	324/(1100+1100)/2 = 29.45%	204/(1100+950)/2 = 19.90%
6	Debt to assets	Debt/Assets	(880+660)/2640 = 58.33%	(850+560)/2510 = 56.18%
7	times interest earned ratio	EBIT/Interest	(540+10)/10 = 5.5 times	(340+20)/20 = 18 times