Question

f.Briefly comment on your results in d. and e. ABC COMPANY Comparative Balance Sheet (dollars in thousands) Last Year This Year Assets Current assets: 1,560 1,280 Cash 12,300 9,100 8,200 2,100 Accounts receivable, net 9,700 Inventory Prepaid expenses 1,800 20,960 Total current assets 25,080 Property and equipment: 6,000 Land 6,000 19,000 Buildings and equipment, net 19,200 25,000 Total property and equipment 25,200 Total assets 45,960 50,280 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 9,500 8,300 Accrued liabilities 600 700 Notes payable, short term 300 300 Total current liabilities 10,400 9,300 Long-term liabilities: Bonds payable 5,000 5,000 Total liabilities 15,400 14,300 Stockholders' equity: Common stock 800 800 Additional paid-in capital Retained earnings 4,200 4,200 29,880 26,660 Total stockholders' equity 31,660 34,880 Total liabilities and stockholders' 50,280 45,960 equity

Answer 1

8	Inventory Turnover ratio:-
	cost of goods sold / average inventory
	i.e., (52000/ ((8200+9700)/2)	5.81
9	Average Sales Period:-
	Total No. of days / Inventory T/O Ratio
	i.e., = 365 / (5.81)	62.82
10	Comment on the above analysis is:-
	Above ratio helps to measure how easily a compay can turn its inventory into cash
	Here, the company can sells its stock in average 62 days.
	If the industry average for above 8 is 3, then we should advise to increase the average inventory which would result in high return.
11	Times interest earned :-
	= Earnings before interest and taxes / TTL interest payable on bonds and other debts.
	Income before tax	$6,500
	interest paid (assumed payable on $5,000 Bonds)	$600
	TIE Ratio :-	10.83
12	The purpose of TIE calculation :-
	is to measure the company's ability to meet its debt obligation as to how many times the said company could cover its interst charges with its pretax earnings.
13	Gross Margin:-	$27,000
14	Return on asset
	= Net Income / Total Assets
	=($3540 / $50280)	7.04	%
15	Return on Equity
	= Net Income / Total Equity
	=($3540 / $34880)	10.15	%