Question

The condensed financial statements of Crane Company for the years 2016 and 2017 are presented as follows. (Amounts in thousands.) CRANE COMPANY Balance Sheets December 31 2017 2016 Current assets Cash and cash equivalents $330 $360 Accounts receivable (net) 570 500 Inventory 580 510 Prepaid expenses 120 160 Total current assets 1,600 1,530 Investments 110 110 Property, plant, and equipment (net) 380 420 530 510 Intangibles and other assets $2,660 $2,530 Total assets $890 $1,000 Current liabilities 500 530 Long-term liabilities 1,130 1,140 Stockholders' equity-common $2,53O $2,660 Total liabilities and stockholders' equity

Answer 1

First 4 parts are being answered here.

a. Current ratio = Current assets / Current liabilities

For 2016:

Current assets = $1530, Current liabilities = $890

Current ratio = $1530 / $890 = 1.72

For 2017:

Current assets = $1600, Current liabilities = $1000

Current ratio = $1600 / $1000 = 1.6

b. Inventory turnover ratio = Cost of the goods sold / Average inventory

where, Average inventory = Beginning inventory + Ending inventory / 2

For 2016:

Ending inventory = $510, Beginning inventory = Ending inventory of previous year = $450

Average inventory = ($510 + $450) / 2 = $960 / 2 = $480

Cost of the goods sold = $990

Putting these values in the inventory turnover ratio formula, we get,

Inventory turnover ratio = $990 / $480 = 2.06

For 2017:

Ending inventory = $580, Beginning inventory = Ending inventory of previous year = $510

Average inventory = ($580 + $510) / 2 = $1090 / 2 = $545

Cost of the goods sold = $1055

Putting these values in the inventory turnover ratio formula, we get,

Inventory turnover ratio = $1055 / $545 = 1.94

(c) Profit margin = Net income / Sales * 100

For 2016:

Net income = $168, Sales = $3580

Net Profit margin = $168 / $3580 * 100 = 4.69%

For 2017:

Net income = $308, Sales = $3920

Net Profit margin = $308 / $3920 * 100 = 7.86%

(d) Return on assets (ROA) = Net income / Average total assets * 100

where, Average total assets = Beginning assets + Ending assets / 2

For 2016:

Ending assets = $2530, Beginning assets = Ending assets of previous year = $2670

Average assets = ($2530 + $2670) / 2 = $5200 / 2 = $2600

Net income = $168

Now, putting these values in the above ROA formula, we get,

Return on assets (ROA) = $168 / $2600 * 100 = 6.46%

For 2017:

Ending assets = $2660, Beginning assets = Ending assets of previous year = $2530

Average assets = ($2660 + $2530) / 2 = $5190 / 2 = $2595

Net income = $308

Now, putting these values in the above ROA formula, we get,

Return on assets (ROA) = $308 / $2595 * 100 = 11.87%