Question

2018 $ 154 2017 $ 198 448 547 $ 1,193 423 630 1,207 $ Cash Accounts receivable Inventory Current assets Plant and equipment Less accumulated depreciation Net plant and equipment Total assets $ 2,205 (1,001) $ 2,604 (1,198) $ 1,204 $ 2,397 $ 1,406 $ 2,613 $ 149 198 0 198 $ $ 152 301 596 897 $ 794 $ LIABILITIES AND OWNERS' EQUITY Accounts payable Notes payable current (9.00% interest) Current liabilities Bonds (8.33% interest) Total debt Owners' equity Common stock Paid-in capital Retained earnings Total owners' equity Total liabilities and owners' equity $ 299 601 $ 299 601 816 703 $ 1,603 $ 2,397 $ 1,716 $ 2,613

Answer 1

Answer is given below

Ratio 2017 2018 Evaluation Industry Norm 5.0 3.0 4.0 1.9 160.4 50% Current Ratio Quick Ratio Inventory turnover AR Collection period Debt Ratio Times Interest earned Total Assets turnover Fixed Asset turnover Operating profit margin Return on common equity 90.0 33% 7.0 0.75 1.00 20.0% 9.0% 4.6 Poor Poor Poor Poor Poor Poor Poor Satisfactory Satisfactory Satisfactory 125.0 52% 5.5 0.56 1.03 24.8% 13.5% 0.50 1.00 20.4% 9.4% b) Current Ratio of the firm is below standard in 2018 Quick ratio is also below industry standard in 2018 Liquidity is not good compared to industry standard Total assets turnover is lower than industry standard in 2018 but improved compared to 2017 Operating margin has improved in 2018 Thereby in 2018 there is d) Firm is using Debt to finance its fixed assets Yes Return on Equity has improved in 2018. Working note A) 2017 2018 Current Ratio Current Assets Current Liabilities $1,193 $198 6.03 $1,207 $301 4.01 2017 2018 Quick Ratio Quick Current Assets* Current Liabilities *Excludes Inventory $646 $198 3.26 $577 $301 1.92 2017 2018 Inventory Turnover Cost of Goods Sold Inventory $853 $699 $547 1.28 1.35 $630 Average collection period Accounts receivables Credit Sales 2017 $448 $1,019 2018 $423 $1,235 X 365 160.45 125.01 Debt Ratio 2017 2018 Total Debt Equity $794 $1,603 50% $897 $1,716 52% 2017 2018 Times Interest earned ratio Earnings Before interest and tax Interest $244 $53 4.60 $360 $66 5.45 2017 2018 Total Asset Turnover Sales Total Assets $1,199 $2,397 0.50 $1,453 $2.613 0.56 2017 2018 Fixed Assets turnover Sales Fixed Assets $1,199 $1,204 1.00 $1,453 $1,406 1.03 2017 2018 Operating Profit Margin Operating Profit Sales $244 $1,199 20% $360 $1,453 25% 2017 2018 Return on Common Equity Net Profit Common Equity $151 $1,603 9% $232 $1,716 14%