Question

7. The financial statements of Elcamino Company appear below: ELCAMINO COMPANY Comparative Balance Sheet December 31, Assets Cash Debt investments Accounts receivable (net) Inventory Property, plant and equipment (net) Total assets $ 2017 $ 25,000 20.000 50,000 140,000 170,000 $405,000 2016 40,000 60,000 30.000 170,000 200,000 $500.000 Liabilities and stockholders equity Accounts payable Short-term notes payable Bonds payable Common stock Retained earnings Total liabilities and stockholders' equity $ 25,000 40,000 75,000 160,000 105.000 S405,000 $ 30,000 90,000 160,000 145,000 75,000 $500.000 $360,000 184,000 176,000 ELCAMINO COMPANY Income Statement For the Year Ended December 31, 2017 Net sales (all on credit) Cost of goods sold Gross profit Expenses Interest expense $11,000 Selling expenses 30,000 Administrative expenses 20,000 Total expenses Income before income taxes Income tax expense Net income 61,000 115,000 35,000 $ 80.000 Additional information: a Cash dividends of $50,000 were declared and paid on common stock in 2017. b. Weighted average number of shares of common stock outstanding during 2017 was 50,000 shares. c. Market price of common stock on December 31, 2017, was $16 per share. d. Net cash provided by operating activities for 2017 was $70,000. Instructions Using the financial statements and additional information, compute the following ratios for the Lewis Company for 2017. Show all computations. Computations 1. Current ratio 2. Return on common stockholders' equity 3. Price-earnings ratio 4. Inventory turnover 5. Accounts receivable turnover 6. Times interest earned 7. Profit margin 8. Days in inventory 9. Payout ratio

Answer 1

1) Current ratio = Current assets/Current liabilities = 235000/65000 = 3.62

2) Return on Common Stockholder's equity = Net income/Average equity = 80000/242500 = 32.99%

3) Price earning ratio = MPS/EPS = 16/1.6 = 10

4) Inventory turnover = Cost of goods sold/Average inventory = 184000/155000 = 1.19 Times

5) Account receivable turnover = 360000/40000 = 9 Times

6) Times interest earned ratio = (80000+35000+11000)/11000 = 11.45 Times

7) Profit margin = 80000/360000 = 22.22%

8) Days in inventory = 365/1.19 = 306.7 days

9) Payout ratio = 50000/80000 = 62.5%