Question

The following are financial statements of Ohara Company. 

OHARA COMPANY

 Income Statement 

For the Year Ended December 31, 2017 

Net sales $2,218,500 Cost of goods sold 1,012,400 Selling and administrative expenses 906,000 Interest expense 78,000 Income tax expense 69,000 Net income $ 153,100 $ 60,100 84,000 169,800 145,000 458,900 575,300 $1,034,200 

OHARA COMPANY

 Balance Sheet 

December 31, 2017 

Assets Current assets Cash Debt investments Accounts receivable (net) Inventory Total current assets Plant assets (net) Total assets Liabilities and Stockholders' Equity Current liabilities Accounts payable Income taxes payable Total current liabilities Bonds payable Total liabilities Stockholders' equity Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 160,000 35,500 195,500 200,000 395,500 350,000 288,700 638,700 $1,034,200 

Additional information: The net cash provided by operating activities for 2017 was $190,800. The cash used for capital expenditures was $92,000. The cash used for dividends was $31,000. The weighted average number of shares outstanding during the year was 50,000. 

Instructions 

(a) Compute the following values and ratios for 2017. (We provide the results from 2016 for comparative purposes.)

 (i) Working capital. (2016: $160,500) 

(ii) Current ratio. (2016: 1.65:1) 

(iii) Free cash flow. (2016: $48,700) 

(iv) Debt to assets ratio. (2016: 3196) 

(v) Earnings per share. (2016: $3.15) 

(b) Using your calculations from part (a), discuss changes from 2016 in liquidity, solvency and profitability,

Answer 1

OHARA Company

Ratio Analysis:

		Formula	2017 ($)	2016 ($)	% change of 2017 over 2016
1	Working capital	Current assets - Current liabilities	458,900-195,500 = 263,400	160,500	64.11% Increase
2	Current ratio	Current assets / Current liabilities	458,900/195,500 = 2.35	1.65	42.43% Increase
3	Free cash flows	Operating cash flows - Capital expenditure	190,800-92,000 = 98,800	48,700	102.87% Increase
4	Debt to assets ratio	Total Debt / Total assets	395,500/10,34,200 = 38.24%	31%	23.35% Increase
5	Earnings per share	Earnings available to Equity shares / Weighted average Equity shares	153,100/50,000 shares = 3.06	3.15	2.86% Decrease

Liquidity and Solvency ratios are in increasing trend from 2016 to 2017. Profitability ratio is slightly decreasing trend from 2016 to 2017.