Question

   LARKER TOOL SA

Statements of Financial Position

December 31

Assets 2017 2016

Plant assets (net)   R$600,300   R$520,300

Current assets

Inventory R$110,950 R$115,500

Accounts receivable (net) 105,750      102,800

Short-term investments 69,000 50,000

Cash   60,100   345,800 64,200 332,500

Total assets R$946,100   R$852,800

Equity and Liabilities 2017 2016

Equity    
Share capital—ordinary (R$5 par) R$300,000 R$300,000

Retained earnings 242,600 165,000

Total equity   542,600 465,400

Bonds payable   200,000 200,000

Current liabilities

Accounts payable 160,000 145,400

  Income taxes payable   43,500 42,000

Total current liabilities 203,500 187,400

Total liabilities 403,500 387,400

Total equity and liabilities R$946,100   R$852,800

All sales were on account.

Instructions:

Compute the following ratios for 2017. (Weighted-average ordinary shares in 2017 were 60,000.)

(a) Earnings per share.
(b) Return on ordinary shareholders’ equity. (c) Return on assets.
(d) Current ratio.
(e) Acid-test ratio.

(f) Accounts receivable turnover. (g) Inventory turnover.
(h) Times interest earned.
(i) Asset turnover.

(j) Debt to assets ratio.

Answer 1

a) Earnings per share:	2017
Retained earnings in 2017	$242,600
Less: Retained earnings in 2016	($165,000)
Net income in 2017	$77,600
Less: Preferred dividends	$0
Earnings available to common shareholders (a)	$77,600
Weighted-average Number of outstanding common shares (b) ($300,000/$5 per share)	60,000
Earnings per share (a/b)	$1.29
b) Return on shareholders' equity:
Net Income (a)	$77,600
Total shareholders' equity (b)	$542,600
Return on shareholders' equity (a/b)	14%
c) Return on assets:
Net Income (a)	$77,600
Total assets (b)	$946,100
Return on assets (a/b)	8%
d) Current ratio:
Total current assets:
Inventory	$110,950
Accounts receivable (net)	$105,750
Short-term investments	$69,000
Cash	$60,100
Total current assets (a)	$345,800
Total current liabilities:
Accounts payable	$160,000
Income taxes payable	$43,500
Total current liabilities (b)	$203,500
Current ratio (a/b)	1.70
e) Acid-test ratio:
Accounts receivable (net)	$105,750
Short-term investments	$69,000
Cash	$60,100
Total Quick Assets (a)	$234,850
Total current liabilities (b)	$203,500
Acid-test ratio (a/b)	1.15

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