Question

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Simon Company’s year-end balance sheets follow.

At December 31	Current Yr					1 Yr Ago			2 Yrs Ago
Assets
Cash		$	32,935			$	38,498		$	38,545
Accounts receivable, net			89,200				62,800			51,100
Merchandise inventory			114,000				85,000			51,000
Prepaid expenses			10,606				10,106			4,283
Plant assets, net			295,220				270,804			233,072
Total assets		$	541,961			$	467,208		$	378,000
Liabilities and Equity
Accounts payable		$	138,997			$	81,327		$	51,393
Long-term notes payable secured by mortgages on plant assets			104,945				110,682			86,044
Common stock, $10 par value			162,500				162,500			162,500
Retained earnings			135,519				112,699			78,063
Total liabilities and equity		$	541,961			$	467,208		$	378,000

The company’s income statements for the Current Year and 1 Year Ago, follow. Assume that all sales are on credit:

For Year Ended December 31	Current Yr						1 Yr Ago
Sales				$	704,549					$	555,978
Cost of goods sold	$	429,775					$	361,386
Other operating expenses		218,410						140,662
Interest expense		11,977						12,787
Income tax expense		9,159						8,340
Total costs and expenses					669,321						523,175
Net income				$	35,228					$	32,803
Earnings per share				$	2.17					$	2.02

Complete this question by entering your answers in the tabs below.

(3-a) Compute inventory turnover.
(3-b) For each ratio, determine if it improved or worsened in the current year.

Compute inventory turnover.

	Inventory Turnover Choose Numerator: / Choose Denominator: = Inventory Turnover / = Inventory turnover Current Yr: / = times 1 Yr Ago: / = times

Compute days' sales in inventory.

	Days’ Sales In Inventory Choose Numerator: / Choose Denominator: x Days = Days’ Sales In Inventory / x = Days’ sales in inventory Current Yr: / x = days 1 Yr Ago: / x = days

	Debt Ratio Choose Numerator: / Choose Denominator: = Debt Ratio / = Debt ratio Current Year: / = % 1 Year Ago: / = % Equity Ratio Choose Numerator: / Choose Denominator: = Equity Ratio / = Equity ratio Current Year: / = % 1 Year Ago: / = %

	Debt-To-Equity Ratio Choose Numerator: / Choose Denominator: = Debt-To-Equity Ratio / = Debt-to-equity ratio Current Year: / = to 1 1 Year Ago: / = to 1

Times interest earned.

	Times Interest Earned Choose Numerator: / Choose Denominator: = Times Interest Earned / = Times interest earned Current Year: / = times 1 Year Ago: / = times

Based on times interest earned, is the company more or less risky for creditors in the Current Year versus 1 Year Ago?

	Times interest earned

Answer 1

inventory turnover ratio	cost of goods sold / average inventory
	current year ($)	1 year ago ($)
cost of goods sold	429775	361386
opening inventory	85000	51000
closing inventory	114000	85000
average inventory	99500	68000
inventory turnover ratio	4.32	5.31
It has improved
days sales inventory	365 days / inventory turnover ratio
	current year ($)	1 year ago ($)
inventory turnover ratio	4.32	5.31
days sales inventory	84	69
It has worsened
debt ratio	total liabilities / total assets
	current year ($)	1 year ago ($)
total liabilities	243942	192009
total assets	541961	467208
debt ratio	45.01%	41.10%
it has worsened
equity ratio	shareholders equity / total assets
	current year ($)	1 year ago ($)
total equity	298019	275199
total assets	541961	467208
equity ratio	54.99%	58.90%
it has improved
debt-to-equity ratio	total debt / total equity
	current year ($)	1 year ago ($)
total debt	104945	110682
total equity	298019	275199
equity ratio	0.35	0.40
It has improved
times interest earned	EBIT / interest expense
	current year ($)	1 year ago ($)
EBIT	56364	53930
interest expense	11977	12787
times interest earned	4.71	4.22
It has improved and less risky